The Senate Budget Committee held a hearing entitled, "Making Wall Street Pay Its Fair Share: Raising Revenue, Strengthening Our Economy."
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NewsTranscript
00:00:00and guests welcome. Next year a number of provisions from the 2017 Trump tax cuts
00:00:08will expire. Republicans have made clear their plans to add 4.6 trillion dollars
00:00:16to the deficit by extending these provisions. 4.6 trillion dollars
00:00:22according to the latest estimate by the nonpartisan Congressional Budget Office.
00:00:284.6 trillion dollars to enact another budget-busting windfall for the wealthy.
00:00:35Democrats are fighting to reduce the deficit, fix our corrupted tax code so
00:00:40that big corporations and the wealthy pay a fair share in taxes, and invest in
00:00:46an economy that works for everyone, all while ensuring those making less than
00:00:50four hundred thousand dollars don't see their taxes go up. That's our work
00:00:54window you might call it. Today we'll look at one option, making Wall Street
00:00:59pay a fair share of taxes. In 2008 Wall Street's reckless speculation caused a
00:01:05major economic catastrophe for America. Millions of Americans lost their jobs.
00:01:11More than half of American families lost at least a quarter of their assets.
00:01:17That economic shock piled on debt and it haunts me as I hear the warnings about
00:01:24climate-related economic shocks ahead of us. From an economic fairness
00:01:30perspective, Wall Street riches accrue more and more to the already extremely
00:01:34rich. One percent of Americans now own 54 percent, more than half, of U.S. owned
00:01:43shares in the stock market. Foreign investors own 42 percent of all
00:01:48corporate shares. Median CEO pay of companies in the S&P 500 hit a record
00:01:56fifteen point seven million dollars. This chart shows the relative growth in
00:02:02worker wages, productivity, corporate profits, the pay of the top one percent,
00:02:07and then spiking northward CEO pay. Worker pay since 1978 has indeed grown
00:02:17somewhat, but economic productivity grew at four times the rate of workers wage
00:02:26growth. The increase in productivity did not flow commensurately through in
00:02:31worker wages, and executive pay has grown more than 18 times faster than the
00:02:40productivity growth. So if you do a little math and multiply four times wage
00:02:47growth is productivity growth, and 18 times productivity growth is CEO pay
00:02:53growth, you get 72 times as the rate at which CEO pay growth has exceeded
00:03:00ordinary working wage growth. Too often these Wall Street profits come from
00:03:07trickery, like stock buybacks that reward CEOs and wealthy shareholders,
00:03:12trickery which surged following the Trump corporate tax cut. And no surprise,
00:03:19real estate investors got particularly favorable Trump tax treatment. At the
00:03:2511th hour, real estate investors got led into a provision Republicans had claimed
00:03:29was for small businesses, providing a tax break worth tens of billions for wealthy
00:03:34real estate moguls. Corporate taxes used to pay a fifth or more of American tax
00:03:42revenue. Now it's down to six percent. Many huge corporations pay zero.
00:03:49Billionaires pay lower tax rates than nurses and plumbers. Our tax code is
00:03:55corrupted and rotten, turned upside down for special interests. What can we do
00:04:01about it? Fix the carried interest loophole. Stop rewards for offshoring
00:04:06jobs. Lock in a real corporate minimum tax on foreign profits so huge
00:04:12corporations can't pay zero. Raise the tax on buybacks passed in the Inflation
00:04:18Reduction Act. Tax companies that pay their CEOs more than 50 times what they
00:04:24pay their average worker. Enact a minimum tax so the richest can't pay lower rates
00:04:29than everyone else. And, what I would love to see, use decorrupting the tax code to
00:04:37make Medicare and Social Security sound and safe as far as the actuarial eye can
00:04:43see. What's clear as Congress gears up for the 2025 tax fight is that Trump and
00:04:50his Republican allies plan to blow up the deficit with trillions more in tax
00:04:54cuts for the super-rich and the largest corporations. Democrats, we know, will
00:04:59oppose that giveaway. There's a lot of conversation to be had in that space. I
00:05:04will say it is not enough just to undo the damage of the Trump tax law. Our tax
00:05:10code wasn't fair before the Trump tax law. Instead, what we must finally do is
00:05:18to finally decorrupt the tax code so that the wealthy and corporations
00:05:22finally pay a fair share to the support of this great country. With that, I turn
00:05:28to my friend Senator Grassley. Thank You, Mr. Chairman.
00:05:34Initially, I thought that today's hearing related to federal revenues was a nice
00:05:40change of pace, particularly compared to the 19 hearings that we've had in this
00:05:46committee on global warming. As I said last year at our very first hearing
00:05:53concerning tax issues, so I'm quoting myself,
00:05:57Congress should regularly examine tax incentives just as we should review
00:06:03spending programs to ensure that they're working as intended, end of quote.
00:06:09Unfortunately, as is evidence from today's politically oriented hearing
00:06:15title, an objective review of our tax laws isn't what this hearing is all
00:06:21about. As a former chair and ranking member of the Finance Committee, I assure
00:06:27you passing legislation to close loopholes or shut down abusing tax
00:06:33avoidance strategies isn't easy. It requires much more than these kinds of
00:06:40hearings or appealing to a never-defined fair share of taxes. It requires building
00:06:48a bipartisan consensus for action and understanding issues that often can't
00:06:54be boiled down to Wall Street versus Main Street. After all, most Americans, not
00:07:02just the wealthy elite, own stocks either directly or indirectly as part of
00:07:09retirement plans. I just learned recently that just in the last 10 years, the
00:07:15number of people holding stock has increased from 52% to 62% in just 10
00:07:23years. Now I fondly recall working with my friend Senator Baucus to
00:07:30identify and enact bipartisan measures to close abusive tax loopholes regardless
00:07:37of which one of us was chairman of finance. We held bipartisan meetings and
00:07:43hearings to better understand the law at issue and take account of both policy
00:07:50and political concerns that might arise. In contrast, I suspect that today's
00:07:58majority will demagogue complex issues and deride Republicans for protecting
00:08:05Wall Street. Well, I've got this news for you. For my colleagues on the left, the
00:08:13reason many of the proposals we're likely to hear about today aren't law is
00:08:18because of Democrat opposition, not Republican opposition. Take carried
00:08:25interests as just one example. Concerns about carried interests became prominent
00:08:30in the 2000s as private equity and hedge funds grew in prominence. In response,
00:08:39Senator Baucus and I called bipartisan hearings to study the issue. However, our
00:08:46review was immediately met with resistance and not just from those you
00:08:51might expect because I recall Senator Baucus informing me about strong pushback
00:08:57he received privately from certain Democrats, which ultimately led to
00:09:03shelving a proposal that we were actively considering. Despite this,
00:09:09Democrats publicly and continuously blast carried interest as a loophole for
00:09:17the rich and blame Republicans for its existence. Yet, when they've had full
00:09:23control of the levers of power, they've repeatedly failed to eliminate it. To
00:09:29date, the only legislative action taken to limit the use of carried interest was
00:09:35enacted by Republicans as part of the 2017 tax law. At the time, Democrats
00:09:42roundly criticized Republicans for not going far enough on carried interest. Yet,
00:09:48when they had the opportunity to address it as part of their so-called Inflation
00:09:53Reduction Act, they failed. This led to a left-wing publication, Jacobin, writing,
00:10:02quote, Democrats pretended they were cracking down on private equity moguls.
00:10:07The truth, Dems were actually protecting them, perhaps because private equity
00:10:14firms are major Democratic contributors, end of quote. Carried interest isn't the
00:10:21only area where the majority says one thing but legislates another way. The
00:10:29majority regularly decries corporate handouts and large corporations paying
00:10:34little or no tax, but again, their so-called Inflation Reduction Act proves
00:10:40otherwise. Included in this partisan tax and spending bill are hundreds of
00:10:47billions of dollars in new or expanded tax incentives for favored green
00:10:53companies. The law also includes novel new tax features such as direct pay and
00:11:02transferability that actually makes it easier for corporations, banks, and even
00:11:08private equity firms to pay little or no tax. Thanks to the Inflation Reduction
00:11:15Act and other legislation passed under President Biden and the Democrat
00:11:20majority, corporate tax benefits are now 92% higher than they were under
00:11:26President Trump. That's based on an analysis of Treasury's, our own
00:11:32Department of Treasury's tax expenditure projections. I'm all for examining
00:11:38perceived loopholes and looking for ways to improve the fairness of our tax code.
00:11:44As past chairman of the Finance Committee, I actually gotten important
00:11:49reforms passed into law, but despite all the hand-wringing, that's not a path my
00:11:57colleagues on the other side are taking. Thank you. I look forward to hearing from
00:12:02our witnesses. Thank you, and I look forward to working with you to see to it
00:12:09that the share of America's corporate revenue contributed by corporations gets
00:12:14better than 6% and that corporations that have very significant revenues are
00:12:20not any longer paying 0%. Our first witness appearing electronically today
00:12:26is Dr. Joseph Stiglitz, a Nobel Laureate who is currently Professor of Economics
00:12:33at Columbia University. He also is Chief Economist and Senior Fellow at the
00:12:37Roosevelt Institute and the founder and co-president of the Initiative for
00:12:41Policy Dialogue. He previously served as Senior Vice President and Chief
00:12:46Economist at the World Bank and as a member and chairman of the Council of
00:12:50Economic Advisers during the Clinton administration. Next is Ms. Sarah
00:12:55Anderson, who is Director of the Global Economy Project at the Institute for
00:13:00Policy Studies and co-editor of the Institute's website, inequality.org. She
00:13:06previously served on the Meltzer Commission, which was tasked with
00:13:09evaluating U.S. policy towards the IMF and the World Bank. And finally, Dr.
00:13:14Michael Falkender is an Associate Dean of Master's Programs and Professor of
00:13:19Finance at the University of Maryland and the Chief Economist at the
00:13:23America First Policy Institute. Mr. Falkender served as the Assistant
00:13:28Secretary, sorry, Dr. Falkender served as the Assistant Secretary for Economic
00:13:34Policy at Treasury during the Trump administration. I welcome all of you and
00:13:40would turn first to Dr. Stiglitz, assuming that our electronic connection
00:13:46can be flipped on. There he is. Please proceed, sir. You have five minutes. Your
00:13:53full testimony will be made a matter of record. Well, thank you, Chairman Whitehouse,
00:13:58Ranking Member Grassley, and members of the committee. It is a great pleasure to be
00:14:03able to discuss future directions of tax policy with you and how the tax code can
00:14:09be more equitable and help create a more dynamic economy that promotes the
00:14:14well-being of all Americans, rather than just Wall Street and other corporate
00:14:19giants or the wealthiest individuals. The tax code has explicitly contributed to
00:14:25inequality and excessive financialization of the economy and
00:14:29distorted the allocation of investment towards fossil fuels and real estate and
00:14:34away from investments that would sustainably raise living standards. U.S.
00:14:39tax policy provides considerable advantages for unproductive activity
00:14:44from Wall Street firms and wealthy investors. In the few minutes I have, I
00:14:49want to emphasize four directions for reform. First, we need to close the
00:14:54loopholes and eliminate the special provisions that result in the richest
00:14:58individuals and most profitable firms not paying their fair share of taxes.
00:15:03Today, billionaires have a lower effective tax rate than working-class
00:15:07Americans. It makes no sense that dividends and capital gains should be
00:15:12taxed at lower rates than wages. It is inequitable that someone who is
00:15:15receiving dividends in his beach resort from inherited stocks should pay a
00:15:20fraction of his income as taxes than that of a nurse who is
00:15:26working long hours to take care of us during the COVID-19 pandemic, or that a
00:15:31hedge fund manager uses the carried interest loophole so she can escape much
00:15:35of the taxes she would otherwise have to pay. Special tax provisions that only
00:15:41serve corporations and the wealthy have enabled and incentivized shareholder
00:15:45payouts, resulting in companies having fewer resources to invest. They reward
00:15:51companies for devoting their energies to tax avoidance rather than becoming more
00:15:55innovative. Companies that excel in tax avoidance grow with the expense of
00:16:00others. Secondly, we need to eliminate tax provisions that are directly
00:16:05distortionary. Our tax system provides large subsidies for the fossil fuel
00:16:10industry, which this committee has previously examined. Further, the tax code,
00:16:15but providing tremendous payouts for Wall Street, encourages the excessive
00:16:19financialization of the economy, making the economy less stable and increasing
00:16:24inequality. Third, we should use the tax code to actively create a better economy
00:16:29by curtailing activities that create negative externalities and encouraging
00:16:34those that generate positive externalities. The tax code should
00:16:38encourage R&D and discourage harmful economic behavior, such as unproductive
00:16:43speculation and excessive emissions. Finally, the tax code should aim more at
00:16:49non-distortionary areas where elasticities are low. For instance, it was
00:16:54a grave mistake not to have imposed a tax on windfall profits, oil companies
00:16:59and other energy companies accrued in the months after Russia's invasion of
00:17:02Ukraine. The revenue from such a tax could have helped those who were
00:17:06suffering from these price surges. Taxing land has little effect on land
00:17:11supply, so too for natural resources. Such taxes actually generate societal
00:17:16benefits, for investment and speculation in these areas divert attention away
00:17:21from more productive investments. The rents generated by such resources should
00:17:26be taxed at higher rates than those imposed on other sources of income. This
00:17:31is true, too, for other forms of rent, most notably monopoly rents. These
00:17:36reforms will significantly improve equity and increase the efficiency of
00:17:39our tax system. While there are countless others, I will conclude by
00:17:43proposing 10 tax reforms that would increase taxes on the ultra-rich,
00:17:49reduce today's extreme levels of inequality and tackle tax avoidance.
00:17:54First, remove the tax advantage for capital gains over other forms of
00:17:58income and of CEO pay in all its forms. Secondly, implement a constructive
00:18:03realization policy taxing assets based on their current value rather than only
00:18:08when the gains are realized. Thirdly, fully tax unrealized capital gains at
00:18:14death. Fourth, implement a minimum income tax along the lines of President
00:18:19Biden's proposed billionaire minimum income tax or Brazil's global minimum
00:18:24wealth tax. Fifth, increase the minimum corporate tax base. Sixth, eliminate tax
00:18:31subsidies for fossil fuels and implement carbon and other environmental taxes.
00:18:36Seventh, expand and make permanent subsidies that increase productive
00:18:40economic activity, such as R&D tax credits. Eighth, a financial transaction
00:18:46tax. Ninth, a windfall profits tax. And tenth, reverse preferential treatment
00:18:51for income from land and other natural resources. We can create a more equitable
00:18:56tax system, which generates substantially more revenue and promotes
00:19:00growth. The principles are clear, and in many cases, their application is
00:19:04straightforward. Vested interest reflected through the power of money in
00:19:08our politics that will stand in the way. Thank you for your time, and I look
00:19:13forward to your questions.
00:19:16Thanks, Professor. I appreciate having you with us. Ms. Anderson, please
00:19:19proceed.
00:19:21Thank you. I'm Sarah Anderson with the Institute for Policy Studies. And the
00:19:24first time I testified before this committee, it was in 2012, at a time
00:19:29when our economy was still struggling to recover from a financial meltdown
00:19:33that threw millions of Americans out of their jobs and their homes four years
00:19:38earlier. I think we can all agree that we don't never want to go through
00:19:41that again. And over the years, Congress and regulators have taken some
00:19:46important steps. But financial institutions still extract too much
00:19:50wealth out of the pockets of working families and shovel too much wealth
00:19:55into massive executive bonuses that encourage inappropriate and excessive
00:20:00risk. With the regional bank failures of last year, we saw that reckless
00:20:06executives can still drive their firms into the ground and walk away with
00:20:11grand fortunes while relying on taxpayer money to contain the damage.
00:20:16This hearing is focusing on tax policy as one tool to ensure that our
00:20:22financial institutions contribute to a healthy economy, and encourage
00:20:27long-term value creation instead of short-term speculation to bump up CEO
00:20:32pay. As you prepare for the 2025 tax debate, which will be a lot of fun, I'm
00:20:38sure you'll agree, I encourage you to consider two questions. One, would our
00:20:44tax system be more fair if financial firms and executives contributed more to
00:20:49the cost of vital investments? And two, can we use tax policy to discourage
00:20:55financial activities that increase instability and inequality and instead
00:21:00incentivize activities that create long-term value? I think the answer to
00:21:05both of these questions is yes. First, big profitable firms are not paying
00:21:10anywhere near the corporate statutory tax rate. Citicorp and Bank of America
00:21:15paid an effective rate of 4% during the first four years after the 2017 tax cuts.
00:21:21The new 15% minimum will help with that, but we need to do more to close
00:21:25loopholes. Second, most Americans are used to paying sales tax when they go out to
00:21:31eat at a restaurant or they buy a new car, but Wall Street traders pay zero
00:21:36sales tax on millions of dollars in stocks and derivatives, and that's
00:21:41encouraged the explosion of high-frequency trading that drains
00:21:45profits from ordinary investors while adding no real value to our economy.
00:21:50Third, financial executives reap huge windfalls from our tax codes bias in
00:21:55favor of income from investments over income from work. We have billionaires
00:22:01paying a lower tax rate than firefighters or teachers, and investment
00:22:05fund managers still get to pay the lower capital gains rate on their carried
00:22:10interest compensation. Fourth, the Tax Cuts and Jobs Act gave big real estate
00:22:14investors yet another tax break through the 20% pass-through deduction meant for
00:22:19small businesses. Clearly the financial sector can and should pay more. Now I'm
00:22:26going to share some thoughts on how to use tax policy to both raise additional
00:22:31revenue and encourage long-term value over short-term speculation and
00:22:36excessive CEO pay. I like to call these twofers. My first twofer is a tax
00:22:42increase on companies that pay their CEO more than 50 times what they pay their
00:22:47median worker. A recent poll showed overwhelming support for this, including
00:22:52among 77% of independents and 71% of Republicans. It would give companies a
00:23:00choice. They could either narrow their pay gaps, which would probably make them
00:23:05more profitable because extreme pay gaps tend to undermine employee morale and
00:23:09productivity, or two, they could choose to pay a higher IRS bill. It would be
00:23:15their choice. My second tax twofer is a financial transaction tax to encourage
00:23:21long-term investment while generating new revenue. The target of this would be
00:23:26the high flyers in the financial casino, while the cost to pension funds and
00:23:31ordinary stock and bond holders would be less than the typical portfolio
00:23:36management fee. My final twofer is an increase in the stock buybacks tax.
00:23:42Whether you were for or against the 2017 tax cuts, I think we should all be angry
00:23:49that corporations took their tax windfalls and spent a trillion dollars
00:23:54of it in 2018 on stock buybacks instead of on worker wages or innovation. For too
00:24:01long, Wall Street has wielded excessive power to shape our tax code so their
00:24:06firms and executives can avoid paying their fair share of taxes while
00:24:10continuing activities and practices that benefit the few while putting the rest
00:24:16of us at risk. The 2025 tax debate is an opportunity to fix these problems as
00:24:21part of a broader overhaul of our tax code to make our country stronger and
00:24:26more equitable. Thank you. I look forward to your questions. Thank you, and I look
00:24:32forward to that broader overhaul. Dr. Falkender, please proceed. Chairman White
00:24:37House, Ranking Member Grassley, Senators on the committee, thank you for the
00:24:41opportunity to testify today on the enormous benefits that the American
00:24:44people realize from having a pro-growth tax code. I've been a finance professor
00:24:48for more than 20 years and had the privilege of serving as the Assistant
00:24:52Secretary for Economic Policy at the Department of Treasury. In that role, I
00:24:55worked on the economic projections included with the administration's
00:24:58budget submission, including research on the historic prosperity that was
00:25:02generated following the enactment of the Tax Cuts and Jobs Act, or TCJA. Today, the
00:25:08American people are suffering from the harmful effects of inflation and
00:25:11declining real wages. As a result of excessive federal spending and onerous
00:25:15regulation, the American people have struggled with average price increases
00:25:19exceeding 19 percent since President Biden took office, while average weekly
00:25:23earnings have risen just 14 and a half percent. For the average household, their
00:25:27hard work buys $2,300 less today than it did just four years ago. Today's hearing
00:25:33is about finding new taxes, such as higher personal or corporate taxes and
00:25:37financial transactions tax, that would further reduce Americans' wages, savings,
00:25:42and investment income, all to fund larger government. Let's first set the facts
00:25:47straight on taxes. In fiscal year 2022, federal receipts were the equivalent of
00:25:5119 percent of aggregate economic output of our nation, the second
00:25:56highest since World War II. Between TCJA enactment and fiscal year 2022, corporate
00:26:02income tax payments rose 43 percent. Personal income tax collections rose 66
00:26:08percent, well faster than inflation. We do not have a revenue problem, we have a
00:26:14spending problem. According to CBO, spending for the next 10 years will
00:26:18continue to be 23 to 24 percent of national output, well above the 20.3
00:26:23percent that it averaged for the 50 years prior to the pandemic. While a
00:26:28national emergency may necessitate temporarily elevated spending, the
00:26:32national emergency is long over. In terms of who pays taxes, in the latest year for
00:26:39which data has been made publicly available, the top 1 percent of
00:26:42households earned 26 percent of income and paid 46 percent of total federal
00:26:48income taxes, well more than their share. The United States has one of the most
00:26:53progressive income tax codes in the developed world, and the Tax Cuts and
00:26:57Jobs Act made it more progressive. On the corporate side, TCJA aligned
00:27:03the corporate tax rate with what corporations were paying in much of the
00:27:06rest of the world. Through provisions like Guilty and Beat, we further
00:27:10incentivized economic activity to take place and be recognized here. The result
00:27:15was that capital investment accelerated, more than 1.7 trillion dollars of foreign
00:27:20capital has been repatriated, and tax inversions have essentially ended. While
00:27:25one may think that higher tax rates would generate higher tax receipts for
00:27:29the government, the Laffer curve explains that higher rates deter economic
00:27:33activity. A higher tax rate paid on less income can result in less income for the
00:27:39government. Additionally, while some of the changes in corporate tax rates pass
00:27:43through to investors, higher corporate taxes also result in higher prices for
00:27:47consumers and lower wages for working families. This is consistent with the
00:27:52economic prosperity our nation realized immediately following enactment of TCJA.
00:27:57Inflation-adjusted incomes jumped a record $4,400 in 2019, compared to
00:28:03falling $2,080 since 2020. Some are proposing a wealth tax to punish
00:28:08successful entrepreneurs. Taxing unrealized capital gains would drive
00:28:13away long-term venture capital investments in leading industries like
00:28:16life-saving biotechnology and low-cost reliable energy, where cash flows often
00:28:22may not be realized for 10 years. Likewise, some are looking to enact a
00:28:26financial transaction tax, which is essentially a fee on trading that will
00:28:30get passed along to the American people. Sweden enacted a financial transaction
00:28:35tax in 1984, after which trading volume declined precipitously and repealed it
00:28:40in 1991. Higher taxes, on top of the growing regulatory burden coming from
00:28:46the SEC, would just accelerate the movement of innovation offshore and
00:28:50further degrade our position as the financial capital of the world. Yet many
00:28:55of the same people calling for higher corporate and personal income tax rates
00:28:58are advocating that we repeal the cap on state and local income tax deductions or
00:29:03SALT. According to a 2021 study by the Tax Policy Center, 70% of the benefit of
00:29:09repealing the $10,000 cap on SALT would go to those making $500,000 or more.
00:29:16It's hard to think of a more regressive tax policy proposal. Our nation needs to
00:29:21address the staggering budget deficits that have put us on an unsustainable
00:29:24fiscal path. Rather than taking even more money out of the productive side of our
00:29:29economy, the American people would benefit from repealing the trillion
00:29:33dollars of green spending in the IRA, stop the Biden administration's illegal
00:29:37student loan forgiveness, return non-defense discretionary spending to
00:29:41pre-pandemic levels, and reverse the regulatory burden that has caused
00:29:45inflation. Thank you for including me in today's discussion and I look forward to
00:29:49your questions. Thank you, Dr. Stiglitz. Let me begin with a few more broad and
00:29:58general questions for you. First, does economic inequality itself have economic
00:30:10consequences? And what happens to those economic consequences as economic
00:30:17inequality worsens? That's a great question. It used to be thought that
00:30:25there was a trade-off. Arthur Okun, who was chairman of Council of Economic
00:30:32Advisors under President Johnson, wrote a book called The Big Trade-off and
00:30:37the argument then was that if you want to reduce inequality, you would have to
00:30:42accept lower growth. But that thinking has totally changed and now we know that
00:30:50countries face a high price for inequality. The IMF studies have shown, and
00:30:56the IMF is not a left-wing institution, has shown that that is the case. It was
00:31:01a central piece of my book called The Price of Inequality. One of the reasons
00:31:06for that is as you get more inequality, the adverse effects get worse and we've
00:31:13had an increase in inequality. And the manner, the ways in which inequality has
00:31:19increased, related to monopolization, financialization, also have adverse
00:31:24effects on the economy. In the context of the harms that are driven by economic
00:31:36inequality, could you elaborate a bit on the extent to which our tax code actually
00:31:42contributes to economic inequality and hence to the economic evils that follow?
00:31:48It contributes in several different ways that have already been highlighted. One of
00:31:55them is that it leads to increased financialization of the economy. The
00:32:03financial sector, in turn, has engaged in activities like predatory lending. But
00:32:14even apart from that, just increased debt leads to greater instability and that
00:32:23instability, the brunt of that, is borne by ordinary Americans. So it increases
00:32:28inequality. Our tax code encourages real estate speculation, provides preferential
00:32:37benefits for CEOs. We've already had a discussion of that. It taxes the very
00:32:44very rich at a lower rate than it does working Americans. So these are just a few
00:32:51of the ways in which our tax code actually exacerbates the inequalities and creates
00:33:00structures which promote inequality. And if we were to look at efforts to take
00:33:07advantage of those tax code failings and perhaps consider tax avoidance as an
00:33:16industry, how would you rank the size of the tax avoidance industry and its positive or
00:33:29negative contributions to society and the economy?
00:33:34The tax avoidance industry has become a major global industry. It's partly a
00:33:41consequence of globalization. Globalization has expanded the scope for tax avoidance
00:33:48activities and given an advantage to individuals and multinationals who operate
00:33:56in many countries because they can take advantage of these tax avoidance activities.
00:34:03They can afford the best tax lawyers who excel at tax avoidance. But one of the
00:34:11central points of my initial remarks was that those tax avoidance activities not only
00:34:19are taking away directly, that is to say those tax lawyers are bright people, they
00:34:26could have been contributing to our economy and instead they're trying to take money
00:34:31away from government. But they distort our economy. We have investments in real
00:34:41estate. We have investments in fossil fuel. We have investments in the financial sector
00:34:48that would not be there if our tax system hadn't actually encouraged those kinds of
00:34:54investments.
00:34:56Thanks very much, Professor. I turn now to my distinguished ranking member, Senator
00:35:02Grassley.
00:35:03My conversation is going to be with Dr. Falkander. My Democrat colleagues talk a big
00:35:09game about making Wall Street pay their fair share. Yet many of the proposals we've
00:35:15heard discussed today from taxing carried interest, the same as ordinary income to
00:35:21imposing financial transactions tax. These have all been around for years, if not
00:35:28decades. Yet Democrats chose not to enact these proposals when they had a 60, even
00:35:34when they had a 60 vote majority during the Obama administration or the last Congress
00:35:40when they ran through two reconciliation bills on purely a partisan basis. Isn't it
00:35:46true that many of the tax proposals that we've heard about today haven't been
00:35:52enacted because Democrats own failure to enact when they had that opportunity?
00:35:58Yes, Senator. They could have done it through reconciliation and they did not.
00:36:02Okay. Won't the policies Democrats chose to enact as part of their unnamed Inflation
00:36:08Reduction Act overwhelmingly benefit large corporations as well as banks and even private
00:36:15equity firms?
00:36:16Yes, there are a number of tax credit provisions and spending in the IRA that are going to
00:36:20go towards large industries and private equity firms, yes.
00:36:25And as we've heard today, many on the left argue that unsustainable fiscal outlook can
00:36:32be solved through tax hikes on the wealthy and large corporations and Wall Street. As
00:36:40a result, the middle class has nothing to worry about, according to them. However, at
00:36:46the Budget Committee hearing last year, the majority witness, Bruce Bartlett, let slip
00:36:54the truth by saying this, quote, I think we should raise taxes on the wealthy, but we're
00:37:01going to have to continually raise taxes on the middle class, end of quote. Isn't it true
00:37:07that this tax and spend agenda will ultimately require tax hikes on the middle class?
00:37:13At these levels of spending, there is nowhere near enough wealth amongst the top 1% or the
00:37:18wealthy to cover all of those expenses and bring the budget into long-term fiscal sustainability.
00:37:25The majority's witnesses discussed imposing a financial transaction tax, which is effectively
00:37:32an excise tax on every stock and bond transaction. Given that most Americans own stock,
00:37:38and that more than two-thirds of the families participate in retirement plans,
00:37:43wouldn't a financial transaction tax hurt savers regardless of their income level?
00:37:49Yes, they will get passed on to investors and savers, including
00:37:53investments through 401k plans. Proponents of financial transaction tax
00:37:58argues it would promote market stability. Has that been the experience of countries
00:38:05who have implemented such a tax? It is not, Senator. So when Sweden
00:38:09implemented one, they saw a reduction in trading volume, which is generally bad for market
00:38:14stability. You want to maintain liquidity through trading.
00:38:18Okay. As you discussed in your testimony, Americans have been ravaged by high inflation
00:38:24and the other side continues to propose tax increase after tax increase. Since the 2020
00:38:31campaign, President Biden has pledged not to raise taxes on Americans earning less than $400,000.
00:38:37However, because of inflation, according to the Bureau of Labor Statistics, it takes $480,000
00:38:45today to have the same buying power of $400,000 in the summer of 2020. Yet President Biden has
00:38:53updated his $400,000 pledge. Isn't this another example of how President Biden's
00:39:01tax and spending agenda is a broken promise? It is because a lot of these tax provisions
00:39:07are not adjusted for inflation. Some in the tax code are, but this $400,000 has not,
00:39:12which means that over time it will hit the upper middle class.
00:39:15Yeah. And in my few minutes, I'm going to make this comment about people talking about raising
00:39:20the marginal tax rate. I used to have a chart and I don't suppose I've shown it for 10 or 15 years,
00:39:27but you can go back to World War II when we had 93% marginal tax rates. And you can go all the
00:39:35way through the 1960s or even up until the 80s when it was still 70%, I believe, or became 70%.
00:39:46But if you looked at what the income coming into the public, it was pretty steady for that whole
00:39:5430 or 40 years, which tells me that you can raise the marginal tax rate as high as you want to,
00:40:02but people that have the ability to make decisions that they're going to work for the government or
00:40:07not work for the government are deciding they're only going to pay X number of dollars and you're
00:40:13not going to get another penny out of me regardless of how high the marginal tax rate is,
00:40:18because they've got the ability to hire the people to make every tax advantage so they get their
00:40:24taxes down to where they're willing to work maybe for 40%, like today, 42% that they pay in. It's
00:40:33just ridiculous to think you can raise marginal tax rates to 93% and you're going to get people
00:40:40stupid enough to pay 93% of their income taxes so they're working for nothing.
00:40:50I give up. No, you don't. You're going to be always fighting. You just yield.
00:40:59Senator Lujan followed by Senator Johnson. Thank you, Mr. Chairman. Dr. Stiglitz, I have
00:41:07some questions for you today. I've been hearing a lot about buy, borrow, and die.
00:41:14Can you explain what buy, borrow, and die is, Dr. Stiglitz?
00:41:20What that refers to is the way so many of the sheer buybacks work. What you do is you
00:41:31borrow money from the market to finance your buybacks. You get deductions for
00:41:43your interest on your borrowing. The sheer buybacks are taxed at favorable rates,
00:41:57only the increment over what you purchased. Meanwhile, and this is probably the worst part,
00:42:04because you reduce the number of shares of the company, the value, the price per share goes up
00:42:13and the CEO gets a big bonus for doing nothing other than financial wizardry.
00:42:18It's nothing real. It doesn't help create jobs. It doesn't help the economy. In fact,
00:42:23it makes the economy worse because the company is now suffering from an additional liability
00:42:31from the borrowing. Dr. Stiglitz, in preparing for this hearing
00:42:38of several studies that I found, what I'm going to point to is some of the experts at Georgetown
00:42:45found that the wealthy avoid taxes for 75% of their investment income. Why is it that
00:42:52the wealthy engage in this tax avoidance strategy?
00:42:59Well, it's because our tax code gives them the opportunity to do it. Over the years,
00:43:07I've seen the very rich engage, particularly through hedge funds, in amazing
00:43:14strategies to avoid, and in some case, evade taxes. The worst get caught and have to pay back,
00:43:24but our tax code is just rife with these provisions that provide for advantageous
00:43:33treatment if you have smart tax lawyers. Dr. Stiglitz, trying to better understand
00:43:42trying to better understand tax policies that have been adopted
00:43:46in recent memory, namely under the previous president,
00:43:53there are estimates that have come out associated with what is a benefit to the wealthy
00:44:02from a stepped-up basis perspective, and the Joint Commission on Tax estimated that
00:44:07the step-up basis at death will cost the U.S. $299.3 billion from 2022 to 2026, or about $60
00:44:18billion a year, and so I just want to take a moment to put that into perspective. I'm one of,
00:44:26I think, two senators right now that went to pre-K. I thought everyone went to Head Start.
00:44:32I didn't know that I had to qualify for the program. That's a joke.
00:44:39What I understand about universal pre-K is that it costs about $14 billion a year,
00:44:46so again, $299 billion is the number I referred to earlier. The Affordable Connectivity Program
00:44:52that provides affordable broadband to over 23 million low-income Americans costs $11 billion
00:44:58a year. The United States recently passed the Bipartisan Radiation Exposure Compensation
00:45:04Reauthorization Act to deliver long overdue justice to those left out of the original RECA
00:45:09program passed in 1990 and amended in 2000, and the New Mexicans who had the first nuclear bomb
00:45:15dropped in their backyards were left out. The program is supposed to provide compensation
00:45:20to downwinders and uranium workers, but it expired on Monday. This just goes to show
00:45:28another area where investment from America can make a positive difference in the lives of so many
00:45:34that injustice has been the only thing that they've experienced. Now, Dr. Stiglitz, how does
00:45:41stepped-up basis and buy-borrow impact the ability of the government to fund critical programs
00:45:48such as education, health care, housing, and infrastructure development?
00:45:51The focus on the step-up basis, it's a mechanism by which rich people totally avoid paying taxes
00:46:01on the income that they've accrued, the capital gains that they've accrued for years, in some
00:46:07cases, decades. So while ordinary people are paying taxes year after year, if you get your
00:46:14income in the form of capital gains, you can postpone it, and then with the step-up basis,
00:46:19you never pay for it. One of the things that I argued in my introductory remarks was that
00:46:29constructive realization, where you force individuals to pay year by year on their capital
00:46:37gains as they accrue, would be an important step forward. But if you don't do that, it's absolutely
00:46:44imperative that you have the step-up basis. And as you pointed out, the revenues lost are very
00:46:53large and could be used in so many constructive ways. You gave a couple examples. There are more
00:47:02we could talk about, enabling more students to go to college. Tuition has gone up enormously.
00:47:12Enormously. So there are a very large number of very productive investments yielding very high
00:47:21returns that would be able to be financed by the revenue you could generate from those two
00:47:29proposals that you talked about. Thank you. Thank you, Mr. Chairman.
00:47:33Senator Johnson, followed by Senator Merkley. Mr. Chairman, we're trying to scramble to get
00:47:37the chart, my own version of the chart that Senator Grassley was talking about. Hopefully
00:47:41we can get it up here before I'm done. I'll just ask all the witnesses, anybody want to defend the
00:47:47current tax code? Anybody think it's a great code? Okay, silence. It's way too complex, right?
00:47:55So when you have something really complex, that's something that can be taken advantage of,
00:48:00correct? So shouldn't our efforts be, rather than reforming the tax code and try and continue to
00:48:07socially and economically engineer through the tax code, wouldn't it make a lot more sense to
00:48:15simplify and rationalize a tax code? Mr. Falkender. It would indeed. And that's one of the things we
00:48:24tried to do in the Tax Cuts and Jobs Act was by doubling the standard deduction and removing some
00:48:28of the deductions for other items was to encourage more people, to encourage fewer people to itemize
00:48:36and more people to take the standard deduction, thereby making it less complex. But unfortunately,
00:48:40people then still calculated both ways and we didn't succeed in doing that.
00:48:43Right. It's complex because you have all these special interests from all over,
00:48:46from all ends of the spectrum coming in here and carving out a little special deal for themselves.
00:48:53So it ends up being incredibly complex. So let's put this chart up here. This is what
00:48:58Senator Grassley was talking about. I mean, this is the futility of trying to punish individuals,
00:49:04you know, trying to punish their success. It just doesn't work. People aren't that stupid.
00:49:09They're willing to hand over so much to government and no more. Ms. Hanson, I want to ask you,
00:49:16what percent of an American's income, of a dollar of income, should the federal government
00:49:22be able to extract? What's the maximum tax rate? Again, I'm just talking about the federal
00:49:26government now. What do you think? I'd be happy to give you my preferred top marginal tax rate.
00:49:31Once you close the loopholes that make a mockery of the top tax rate.
00:49:35Let's call it the effective tax rate. What is the maximum amount anybody ought to pay
00:49:39after all the deductions, that type of thing? Since people are not paying that at the top level,
00:49:44we have billionaires paying an effective 8.2% rate.
00:49:47Just give me what you think is the most anybody should pay out of a dollar of income.
00:49:51Yeah. It's not about, that chart is not about futility. That chart is about loopholes that
00:49:56members of Congress have allowed in the tax code. I've got limited time. Dr. Stiglitz,
00:49:59what do you think the maximum amount anybody ought to pay out of a dollar of income?
00:50:04I think you begin by asking the question, how do you close the loopholes?
00:50:12It's a very simple question. What is the maximum amount any American ought to pay out of a dollar
00:50:16of income? It's a very simple question. Again, eliminating all the loopholes,
00:50:20but I mean the effective rate. What is the maximum amount somebody ought to pay?
00:50:24One of the things I said is, if you derive your money from land speculation,
00:50:30you should pay a very, very high tax rate. First of all, let me say, to simplify the tax code,
00:50:37income should be income. There is a rationale for a lower tax on capital gains because you're
00:50:42taxing inflationary, the inflationary gain. You could index the inflationary gain and then tax
00:50:48it at the individual rate. Here was my proposal in 2017, 2018. I call it a true Warren Buffett tax.
00:50:54Tax all business income at the ownership level. 95% of American businesses are pass-throughs.
00:51:01It's entirely possible. I talked to Warren Buffett about this, talked to his shareholder services
00:51:06people. You can allocate income and you tax income every year, allocate it and tax it at
00:51:11the ownership level. You could have corporations do a backup withholding. All kinds of advantages
00:51:17that plan right now, parts of it are being scored by JCT, hopefully, the chairman of both this
00:51:22committee and the finance committee. I know Chairman Wyden is interested in it. Again,
00:51:26that would be a simple system. By the way, you wouldn't have that locking up of unrealized
00:51:33profit in C-Corps. Again, what's going to happen in 2016 is a gross distortion and put small
00:51:42companies, 95% of American businesses at a huge disadvantage to the big C-Corps. We need to address
00:51:48that. Mr. Falkender, why don't you comment on what I'm talking about there? I don't think you've ever
00:51:52seen that plan. No, I've heard you talk about it, but I haven't yet seen the details and I look
00:51:57forward to seeing the score come out. Yes, if we could do everything as a pass-through, you'd
00:52:00eliminate some of the distortions that are created by changing your tax structure all to have a lower
00:52:06rate either as a C-Corp or an S-Corp. What we ought to do is tax all income uniformly and stop
00:52:13if you spend money the way government wants you to, you have a lower or no tax rate than if you
00:52:18don't do it the way, than if you spend your money the way you want to. You'd agree. We do a terrible
00:52:22job socially and economically engineering through tax codes, so stop doing it. Use the tax code to
00:52:27collect the revenue the government needs as simply and fairly as possible. That ought to be our
00:52:33effort. Rather than talk about these all complex things about a billionaire tax, let's simplify
00:52:38this thing. Let's rationalize this. That's what I'm going to try and push forward the next couple
00:52:42years. Lower the rates, broaden the base, stop picking and choosing winners and losers through
00:52:46the tax code. By the way, one principle that we should abide by is wherewithal to pay. So trying
00:52:51to tax unrealizable capital gains would be disastrous, okay? But again, I hope the chairman
00:52:57takes a look at my tax plan because it makes a lot of sense. I'm sympathetic to the senator's
00:53:03concerns and I appreciate the enthusiasm with which he pursues them. I do think that when it
00:53:09comes to the question of what the tax rate should be on a dollar of income, it matters whether it's
00:53:18the first dollar or the last dollar, and it matters whether it's the ten thousandth dollar
00:53:25or the ten millionth dollar of income for that individual. But you're complicating the
00:53:31question. Again, it's just like overall. Yeah. The effective tax rate, you know, what should be the
00:53:35max? You want to tell me what you think your maximum should be? I don't because you got to
00:53:39know what the dollar is. Well, say it's a person who's earned a billion dollars.
00:53:45Say someone earned a billion dollars. The last dollar, how much should it be taxed? I don't even know it exists.
00:53:49How much should it be? What's the percent? What percent? The last dollar of a billion. So now we're
00:53:53giving you your information. I would say way above 50 percent. So what? Because the billionaire doesn't even
00:53:57know that dollar exists. So what should it be? But it's very different if somebody's making $30,000.
00:54:02You asked a question. Which dollar is it? It's a billion. Someone earned a billion dollars one year.
00:54:07Bill Gates earned a billion dollars. What should be taxed in the last dollar? Well over half.
00:54:12How about a million? 70 percent? We're into Senator Merkley's time.
00:54:19Senator Merkley. Thank you, Mr. Chairman. And this issue of our tax code is fundamental
00:54:26because we do so many different things with it. But one of the things that it certainly does is
00:54:30accentuate the wealth of the wealthiest individuals. My father, the mechanic, would ask the question,
00:54:39why is it that working people who earn their income by the sweat of their brow pay a higher
00:54:46marginal rate than do millionaires getting a return on their already existing investments?
00:54:54I think it's an important question to continue to ask. But I wanted to turn, Mr. Stiglitz, and
00:55:02good to have you here, to the comment that President Trump made recently when he told some
00:55:08of the country's wealthiest political donors they should increase their donations from two to three
00:55:13million to 25 or to 50 million dollars in support of his election because his tax policies would
00:55:21benefit them far more than would Biden's tax policies. And so I want to know to what degree,
00:55:31Mr. Stiglitz, would retaining some of the cuts for the wealthiest individuals and the corporations
00:55:37from the previous Trump tax cuts or increasing those cuts, how would that benefit ordinary Americans?
00:55:45It actually would harm the economy. You know, I was asked in the beginning about the relationship
00:55:57between economic performance and inequality and I said the evidence now is in, it's very strong,
00:56:03that a more unequal society performs better, grows more poorly, a more unequal society performs more
00:56:12poorly, grows more slowly, and greater financialization is bad for economic stability
00:56:28and our tax code encourages that. Our tax code encourages more speculation and that's
00:56:36bad for the ordinary citizen. So the extension of the kinds of policies that President Trump
00:56:47enacted would, I believe, be not only bad for the typical American but be bad for our overall
00:56:58economy. Remember the tax cuts that were enacted in 2017 went overwhelmingly to those at the very,
00:57:07very top. Mr. Stiglitz, then I want to shift to, I just had a series of town halls this weekend.
00:57:17I have a town hall in every county every year. I was in towns that basically, I lost these counties
00:57:25by 30 to 50 percent. So they are not what you'd call my base electorate. And the issue that came
00:57:34up most over anything else was the high cost of housing. So this is very much a factor in urban
00:57:41America. It's a factor in rural America. People are watching the dream of home ownership disappear
00:57:49before their eyes for their children. And we have a number of programs for more affordable rentals,
00:57:59more affordable first time home ownership. But one of the things that I've been directing some
00:58:04attention to is the growing role of hedge funds in buying up American single family housing.
00:58:12What we saw in 2009 after the foreclosure crisis is the government sold houses in groups of 1,000
00:58:21or more. And no ordinary American buys 1,000 houses. Hedge funds, where the investment of
00:58:27millionaires and billionaires exist, buys those houses. They were being sold at 50 percent
00:58:32discounts. I suggested they make them available to ordinary families. I took this up with the
00:58:36treasury secretary as a brand new senator. I took it up with the president to say make them
00:58:41available for three to six months to ordinary families. And basically the response was too
00:58:46complicated, too many homes to dispose of, too worried about vandalism, frozen pipes, so on and so
00:58:52forth. But the hedge funds from 2009 forward have now recognized that there's this enormous
00:58:59slice of the American pie that was the major wealth builder for middle class Americans.
00:59:06And the hedge funds want to take that off the plate of middle class Americans and put it on
00:59:11their plate. It's estimated that by the end of this decade the hedge funds will own some 40 percent
00:59:17of the single family rental houses in America. And right now we see in some markets the hedge
00:59:24funds buying some 40 percent of the single family houses available. In Oregon we hear the vignettes
00:59:31of people saying my realtor told me I was outbid by an all cash no inspection offer. Who makes
00:59:38all cash no inspection offers? Is there any logic to saying that we should keep home ownership,
00:59:46single family home ownership, on the plate of middle class Americans? And I've specifically
00:59:52proposed that hedge funds cannot buy any more single family housing, that they have to sell
00:59:56what they have over a 10 year period, 10 percent of it, their housing stock each year. Is there
01:00:01a reasonable argument to say that in terms of equity under how we approach the opportunity
01:00:11and the stake in our society for ordinary working Americans, hedge funds shouldn't be in the single
01:00:17family housing market? Well first let me say that that I do think home ownership is very important,
01:00:25it's important for community stability, it's important for engagement in all kinds of
01:00:33participation, education, local schools and so forth. Secondly let me say that the tax code
01:00:41has given benefits to the hedge funds and the tax code has broadly in the real estate sector
01:00:53contributed to real estate speculation, land speculation, which increases the price of land
01:01:01that makes housing more generally less affordable. The third thing is in some communities there is
01:01:09real concern that they own a sufficient fraction of the housing that you no longer have a competitive
01:01:18housing market and that allows them to raise prices that take advantages of the tax code
01:01:24and of market power. They're in there not to make people happier, they're in there to make more money
01:01:33and it's become an attractive venue of money and when you think of they're making money,
01:01:39who is the money coming from? It's coming from ordinary Americans, it's just a transfer
01:01:44and so you're absolutely right Senator that it's a transfer which not only increases inequality
01:01:51but I think undermines the American dream, undermines our communities and undermines
01:01:59the opportunity for the typical American to make his way up in the world. And I'll just close,
01:02:06I know I'm over time so I'll just close with this comment, that the tax code very much plays on why
01:02:10this is such a profitable enterprise, untaxed appreciation and artifice of depreciation
01:02:19which is just a tax shelter and untaxed interest for the funds to actually leverage
01:02:30their funds to borrow more and not pay taxes on that interest. So there's several features
01:02:36that really help drive the profitability for hedge funds. Senator Romney. You're absolutely right.
01:02:44Senator Romney. Astonishing. I'm delighted that we're talking about things related to our deficit.
01:02:52We should have been doing this for a long time and I appreciate the fact that we are.
01:02:56Recognize of course that this is not about gathering information and making decisions.
01:03:00We've never met as a committee on these things privately. You're seeing our full discussion of
01:03:06tax code right now. We're here to perform for an audience but the joke's on us because basically
01:03:12no one's watching. This is not something the American people are tuned into. That doesn't
01:03:18mean it's not important. I will note that things, it's not my quote, it comes from another famous
01:03:24economist, things that can't go on forever won't. And continuing to spend massively more than we
01:03:30take in and adding every year massively to the national debt will not go on forever and unless
01:03:38we deal with it in a constructive way, we will have a financial catastrophe at some point. I
01:03:44can't tell you when it is. Hopefully we'll deal with this issue and don't have the catastrophe
01:03:49but that's going to be a challenge for us. I would note it's not just spending, it is both
01:03:55spending and taxing. You have to do both in order to reach balance. If somehow we were able to
01:04:03magically stop all spending other than military that we vote on every year, we limited all of
01:04:08government, kept in place of course the entitlements that are mandatory, but all the rest of the
01:04:14government we get rid of, we still have a deficit. So we're going to have to look both at spending
01:04:18and taxing. I keep hearing this idea that there are corporations that are very profitable that
01:04:25pay no tax. Now I can't figure out how that is because if they're following the government tax
01:04:32law that we've written and that Congress has approved and the president signed and they have
01:04:37a profit, they have to pay a tax in that profit. Is that right, Ms. Anderson?
01:04:42There are many tax avoidance strategies. No, no, no, no, no, no, no, no, no, no, no, no, no,
01:04:48answer the question. If a company follows government tax accounting policies passed by
01:04:56Congress and the president and shows at the end of the year, let's say a million dollar profit,
01:05:01they have to pay a tax on that profit of 21 percent. Is that right? Unless they're getting
01:05:06other tax credits that balance that out. Well, but if they have other tax credits, that means
01:05:10that's following the government account, the things we've passed in Congress. My point is this,
01:05:16which is companies that are profitable under the law that we've passed are paying full taxes.
01:05:24So if you think there are companies out there that are massively profitable that aren't paying taxes,
01:05:29that's just not true. I wish there was more transparency. No, excuse me, I'm speaking now,
01:05:34not your turn. So what that says is, what that says is if we don't like the taxes companies are
01:05:39paying, then let's be honest about it and change the federal law. But companies are paying taxes
01:05:46as we have passed them. What's being said is dishonest when people say, oh, all these companies
01:05:51are earning all this money. What they're referring to, I've tried to ask, what are you talking about?
01:05:55They say, oh, we're talking about Wall Street accounting, not government accounting. You see,
01:06:01companies are paying full taxes under government accounting, but then the politicians look at Wall
01:06:06Street accounting and say, oh, they're making profit there, they should pay a tax on that.
01:06:10That's a different matter. So let's be honest in how we deal with that issue. CEO pay as a ratio.
01:06:15The idea you indicated we should pay or charge CEOs based upon the ratio of their pay to their
01:06:22lower employee wages. Do you know what companies would do in that circumstance? Think about
01:06:27unintended consequences. And that is companies would separate their employees between two
01:06:32different companies and low income people would be part of one company and higher income people
01:06:38would be part of the other. All right. You have to recognize that the kinds of things you're
01:06:42suggesting have massive unintended consequences. The idea of taxing people based upon their assets,
01:06:50which Dr. Siglitz suggested we had to do based on their net worth, not their income,
01:06:54but the net worth. Do you know what that would do? France found out they tried that
01:07:00they had 60,000 multimillionaires leave the country over the course of about a decade.
01:07:07They stopped doing it. There's no other country in the world that taxes people based on their assets
01:07:12because they realize people flee when that happens, move assets other places,
01:07:17unintended consequences. Look, we're going to have to do things that do raise additional revenue
01:07:23and we're going to have to do things that cut spending. We've got to do both,
01:07:27but we've got to be honest with each other if we're going to do that in a reasonable and fair
01:07:32way. And I would note, this is a small sub point, the idea of eliminating the tax-free step up at
01:07:41basis and death is one thing we had to look at and probably make sense. All right. I do think
01:07:46that when we look at taxes, we have to say which things can we adjust that won't hurt the growth
01:07:51of the economy? Because most of what's been described today is, in my opinion, going to be
01:07:57highly detrimental to the growth of the economy and the capacity of America to create jobs and
01:08:02lead the world. Don't forget, our economy is leading the world. Don't try and fix and break
01:08:11what's actually working pretty well. And let's fix things that we can to finally rein in the
01:08:16excessive spending and deficits that we're seeing. Mr. Chairman. Thank you, Senator Romney. Senator
01:08:23Van Hollen. Thank you, Mr. Chairman. Always good to listen to our colleagues, Senator Romney. I
01:08:29would just make a distinction between those individuals and corporations that are not paying
01:08:35their taxes that are due and owing versus those that are making payments compliant with the law.
01:08:42And in those areas, as you said, Senator Romney, some of us think that the current law does need
01:08:47to be changed to create a more sort of productive economy and not reward excessive risk taking by
01:08:54CEOs, for example. But just to be clear, the funding that was requested for the IRS,
01:09:01which House Republicans anyway have tried to zero out over time, is designed to make sure that
01:09:09people pay the taxes that are already due and owing. And it amounts to huge sums of money
01:09:15every year, according to many economists. So thank you, Mr. Chairman, for holding this hearing
01:09:23and all of the witnesses for covering some of these issues. I know the carried interest loophole
01:09:29has been covered. I think if you look at our current tax system, it's riddled with provisions
01:09:39that need to be revised and reformed, both to sort of encourage more productive investment,
01:09:48but also to raise funds that are important to invest in things like education, health care,
01:09:55and our people. Ms. Anderson, you mentioned in your testimony the effort some of us have
01:10:03been pursuing with regard to Section 956 of what was back in the day the Wall Street Reform Act.
01:10:13One of the things we saw during the 2008 financial crisis was how big firms paid out tens of
01:10:19millions in bonuses to CEOs, in many cases that were from the same firms that U.S. taxpayers
01:10:27ended up bailing out, which is why many of us have been working to try to ensure that federal
01:10:33agencies implement Section 956. The Federal Reserve has been a laggard here. Could you just speak to
01:10:44the importance of doing that and how many of these bonus systems simply reward short-term
01:10:51risk-taking at the expense of other investments on behalf of firms and their stockholders?
01:11:00Yes, and I want to thank you, Senator Van Hollen, for your efforts to finally get this part of the
01:11:042010 Dodd-Frank bill implemented. This is the part that bans Wall Street firms from providing
01:11:12incentive compensation that encourages inappropriate risk, and six different agencies have to agree to
01:11:20it, and so it has gotten dragged out far too long. We're hoping to see action in ways that would
01:11:27incentivize Wall Street executives to think more about the long-term value creation instead of
01:11:33complicated schemes that can blow up and put the rest of us at risk. For one thing, they could
01:11:39require them to put a share of their incentive compensation into a joint fund that could be used
01:11:45to pay any potential penalties against the company for fraudulent behavior, but there are a lot of
01:11:52important ways that are on the table and being discussed to finally get that regulation over the
01:11:57line in a way that I think will mean that we're all safer from the kind of risk we saw in 2008.
01:12:03Well, thank you for that, and we are continuing to push all the federal agencies to move forward
01:12:10on those rules. Dr. Stiglitz, thank you for raising the issue of tax treatment of capital
01:12:16gains at death. As you know, current law, including very large exemptions to the estate tax,
01:12:24entrenches and accelerates wealth inequality. In fact, it's one of the larger sources of just
01:12:33wealth being passed on from generation to generation in huge amounts, essentially avoiding
01:12:42any taxes, any commitment to the public good in the process. Could you just talk about
01:12:50why we need to address this issue and how failure to address it contributes to increasing wealth
01:12:58inequality in the United States and reducing investments in productive areas?
01:13:04Well, first let me say that it also contributes to a sense that the tax system is unfair,
01:13:13because what it means is that the income of individuals that is earned in the form of
01:13:21capital gains of these rich individuals is never, never taxed. So while ordinary people may be taxed
01:13:32at 25%, 30%, those who can take advantage of step-up basis and receive their income or convert
01:13:43their income into capital gains totally escape that taxation. And because they escape that
01:13:51taxation, they're able to pass on so much more wealth to the next generation, who then can engage
01:14:01in that same activity over their lifetime. And so you have the creation of a plutocratic country.
01:14:10Well, thank you for summing that up quickly. And it's one of the areas that I and others have been
01:14:15focused on and look forward to continue to work with you and appreciate all the work that you've
01:14:20done in this area over many, many years. Thank you, Mr. Chairman.
01:14:24Thank you, Senator. I'm going to wrap up the hearing here. One of the things we do in the
01:14:32hearing is ask witnesses to answer questions for the record. And Dr. Stiglitz, in particular, I'd
01:14:43like to ask you a question for you to get back to us that relates to climate-related risk and the
01:14:58extent to which it appears now to be adequately or inadequately accounted for
01:15:09in the corporate sector. We've heard again today my Republican friends trying to insist that there
01:15:17is a difference between climate risk and economic risk, that the two are unrelated. We've had
01:15:23abundant testimony from very expert and highly regarded people who are bound by fiduciary
01:15:34responsibility who point out the exact opposite. I happen to believe that climate risk is the
01:15:41looming is the biggest looming risk over our economy, that climate risk is economic risk,
01:15:47and that economic risk is budgetary risk. Indeed, a third of our debt has come from
01:15:53economic shocks, not just from the erosion of spending over taxation and income.
01:16:03We talked about the 2008 shock and its role today. And the chief economist for Freddie
01:16:09Mac warned that we got another one coming just from coastal property values being hit by the
01:16:14insurance failure that followed by mortgage failure that follows by values failure,
01:16:19and we've had other witnesses confirm that testimony. So I just flat out reject
01:16:26the notion that climate risk is not economic risk, and that that economic risk is not a
01:16:31huge budgetary risk. I think all of the evidence runs to the contrary. And in that regard,
01:16:38Dr. Stiglitz, you watch all of this very carefully. You've provided excellent economic
01:16:42testimony about climate risk. And I'd love you to answer in a written QFR
01:16:51how well you think at the moment the market is assessing climate risk and how well you think
01:17:02corporate reporting accounts for climate risk. Would you be willing to do that?
01:17:09Very much so. And you're absolutely right. Climate risk is an economic risk. It is a budgetary risk.
01:17:21And some people think because climate change is out there in the distant future,
01:17:28it's not something that we have to pay attention to today. But that's not true.
01:17:34But that's not true. We're already getting some of the direct effects on, as you mentioned,
01:17:43in terms of extreme weather events, in terms of coastal properties being adversely affected.
01:17:51But there's another effect that I would want to emphasize, which is at some time in the not
01:17:56too distant future, markets are going to wake up and realize that we can't go on with fossil fuels.
01:18:06And when that happens, there will be a reevaluation of the price of fossil fuel-related
01:18:16corporations, activities. And if you thought that there was a big shock from mispricing of
01:18:24residential real estate mortgages, this is an order of magnitude larger. And hopefully,
01:18:32it won't happen. The market will realize this more gradually. But where we are right now,
01:18:41the market has not taken these risks on board. And it could come as a very big shock to our
01:18:50entire economic system. Well, I'd ask you to write that out for me as a response to a question for
01:18:55the record, and also to touch on how effective you think the new SEC proposal will be in improving
01:19:03the climate risk reporting. And with that, let me thank the witnesses for appearing before
01:19:12the committee today. Questions for the record other than the one I just asked will be due by
01:19:18noon tomorrow, either to the committee clerk or by email. We will ask the witnesses, Dr. Stiglitz,
01:19:27this would be you if you wouldn't mind responding within seven days of noon tomorrow. That would be
01:19:32very helpful to us as a committee to have your response in by then. And ditto to any other
01:19:39questions for the record that come in by noon tomorrow. With no further business before the
01:19:44committee, our hearing is adjourned.