December 16,2014

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Hatch Outlines Seven Principles for Comprehensive Tax Reform

WASHINGTON – In a speech on the Senate floor today, Finance Committee Ranking Member Orrin Hatch (R-Utah) outlined seven principles needed to guide comprehensive tax reform forward, saying such reform should embrace economic growth, fairness, simplicity, permanence, competitiveness, promoting savings and investments, and revenue neutrality. 

In the coming weeks and months, I plan to reveal additional steps.  I plan to involve many of my colleagues on both sides of the aisle, particularly those who will be joining me on the Senate Finance Committee.  My hope is that, as this conversation continues, a path toward real bipartisan tax reform will begin to take shape.  Of course, it’ll take more than just a talk and discussion.  It’ll take hard work, commitment, and, of course, compromise,” said Hatch.

Earlier this month the Senate Finance Committee issued a minority staff report, titled “Comprehensive Tax Reform for 2015 and Beyond,” outlining these seven principles and raising issues policymakers will have to confront in the effort to reform our nation’s tax code.

Below is the text of Hatch’s full speech delivered on the Senate floor today:

Mr. President, as we wind down the final days of the 113th Congress, it is a good time to both reflect on the past and look toward the future. 

I have been very moved as I’ve listened to the farewell speeches of our departing senators and I wish that I had time right now to pay tribute to each of them.  They have all been wonderful colleagues and I have enjoyed working with and getting to know every one of them.   I wish them all the very best of luck in all their future endeavors. 

They will most certainly be missed. 

Turning to the future, there are a number of challenges before us, Mr. President. 

We have an economy that, despite recent upticks, is still struggling.

We have a national debt that, despite recent reductions in the deficit, is headed toward astronomical levels.

And, we have a pending crisis with our entitlement programs that threatens to swallow up our government and take our economy down with it. 

I believe we can fix these problems, Mr. President, but it’s not going to be easy.

Today, I’d like to take a few minutes to talk about a particularly important effort that I believe will help us address some of these fundamental challenges.  I’m talking, of course, about tax reform. 

Over the last few years, I’ve spoken numerous times – both here on the floor and elsewhere – about the need to fix our broken tax code.  I’d understand if there are some who tire of hearing me talk about tax reform – but that doesn’t mean I’m going to stop any time soon. 

Tax reform is no longer optional, Mr. President, it is essential.  If we’re going to get our economy moving again, we need a tax code that will stop standing in the way.   And, make no mistake, promoting job creation and economic growth is the first and most important step we need to take in order to address our nation’s most pressing problems. 

This is no secret to anyone in this chamber.  I don’t think I’ve been blessed with unique insight into these matters.  We all know what we have to do.  And, that, in and of itself is pretty remarkable.  Indeed, even with all the partisanship and division we’ve seen over the last few years, there is bipartisan agreement on the need to reform our tax system.

Sure, there are disagreements on the details that cannot, at this time, be overlooked.  But, on the basic question surrounding the need for reform, people in both parties have reached the same answer: Reform is necessary and it needs to happen sooner rather than later. 

My hope is that, today, I can say a few words that will help to set the stage for our reform efforts in the near future. 

Last week, I released a report drafted by my staff on the Senate Finance Committee, titled “Comprehensive Tax Reform for 2015 and Beyond.”  This report – I’ve been calling it a book as it is 340 pages long – outlines the major issues policymakers will have to confront as we undertake tax reform. 

It describes where we are with our current tax code, where we’ve been, and, most importantly, it gives some direction as to where we should go with our reform efforts in the future. 

I hope all of my colleagues will take the time to read through it.

I need to be clear: This is not a tax reform plan.  It is a discussion of ideas and principles that I hope will be the first step in a renewed bipartisan effort to reform our nation’s tax code in the very near future.  More than anything, I hope my colleagues will view this book as an invitation to work together on this most important endeavor. 

As outlined in the book, tax reform, in my view, should be undertaken with a set of simple principles in mind.

The most important principles are the three set out by President Reagan the last time Congress was able to pass a major tax overhaul, nearly three decades ago. 

President Reagan’s first principle, and in my view, the most important, was economic growth.

Tax reform should significantly reduce much of the economic distortions that are present under the current income tax system and promote growth in our economy.  It should eliminate the anticompetitive nature of the current tax system, such as the high U.S. corporate tax rate, which stifles job growth. 

High marginal tax rates are present up and down the income scale and they act as disincentives for work, entrepreneurship, and investment.  These growth deterrents – which are embedded nearly everywhere in our tax code – should be eliminated. 

President Reagan’s second principle was fairness.

The income tax base, which has become riddled with exclusions, exemptions, deductions, and credits, should be as broad as possible.  Tax reform should reduce the number of tax expenditures, thereby broadening the tax base, while simultaneously lowering tax rates. A broader tax base coupled with significantly lower tax rates is the basis of what would be a much fairer tax system.

The final principle outlined by President Reagan was simplicity.

Our tax code has grown to almost four million words. Today, approximately 59 percent of American households use paid preparers to do their individual income taxes and another 30 percent use tax software to assist them. Taxpayers and businesses spend over six billion hours a year complying with tax-filing requirements with compliance costs totaling over $168 billion annually.  That, Mr. President, is larger than the size of the entire economy of New Zealand, and an amount that would employ more than three million workers full time at an hourly wage of $25.

A simpler tax code would greatly reduce these compliance costs, resulting in greater efficiency and compliance by American taxpayers.  Let’s unleash resources from being devoted to figuring out or gaming our broken tax code, and make the resources available for job creation.

The three principles from President Reagan will be vital to our tax reform efforts.  But, like I said, it’s been nearly 30 years since Congress tried to put President Reagan’s principles into action.  Much has changed in that time.  In order to address the needs of today, additional principles are necessary.

One of those principles is permanence. 

The tax code needs certainty.  The Joint Committee on Taxation lists almost 100 tax provisions that will expire between 2013 and 2023.  Individuals and businesses need to be able to rely on provisions in the tax law for planning purposes.  The lack of certainty in our tax laws hinders job creation and stifles economic growth.  We need a tax system that no longer threatens to change from year to year.

Another important principle is competiveness.

The combination of a high corporate tax rate, worldwide taxation, and the temporary nature of some tax incentives make U.S. companies less competitive when compared to their foreign counterparts.  In addition, U.S. multinationals are discouraged from repatriating foreign earnings because of the U.S. corporate tax that applies at the time of repatriation – a corporate rate that is the highest in the industrialized world. 

Tax reform should reduce the high tax rates on businesses and also achieve neutrality through a competitive international tax system, thereby placing worldwide American companies on a level playing field with their foreign competitors when conducting business in other countries.  The result would be more worldwide American companies establishing or retaining their corporate headquarters in the United States, more exports to global markets, and retention and reinvestment of money in the United States rather than abroad.

Promoting savings and investment is another important principle.

Many aspects of the U.S. income tax system discourage savings and investment by individuals, thereby hindering long-term growth. Tax reform should result in a tax system that actually encourages people to save and invest.

Last, but certainly not least, there is the principle of revenue neutrality.

I know this will be a sticking point for some, though, for the life of me, I can’t see why.

If we’re scouring the tax code looking for ways to squeeze more revenue to fuel government spending, we’re not reforming the tax code, we’re raising taxes.  It’s as simple as that.

Tax reform should not be used as an excuse to raise taxes on the American people or on U.S. businesses.  Any effort to use tax reform as a revenue-raising exercise is a needless distraction.

Anyone who believes that the American people are currently undertaxed should look at historical trends.  According to the Congressional Budget Office, federal revenues are set to exceed historical averages as early as next year and will remain that way. 

We can talk about shoring up deficits and paying for spending, but we shouldn’t be looking to the tax code as a resource for additional revenue. 

If you count up these principles, Mr. President – including those established by President Reagan and the ones added since – there are seven in total.  In my view, these seven principles should serve as guideposts for our tax reform efforts.  Any idea or proposal we consider should link back and be relevant to at least one of these principles.  The best ideas and proposals should probably link back to all of them. 

Like I said, the book we released last week outlines these principles and also provides a wealth of background information about our tax code and the need for reform.  I view it as a first major step in a tax reform effort that I hope will get underway early next year.

In the coming weeks and months, I plan to reveal additional steps.  I plan to involve many of my colleagues on both sides of the aisle, particularly those who will be joining me on the Senate Finance Committee. 

My hope is that, as this conversation continues, a path toward real bipartisan tax reform will begin to take shape.  Of course, it’ll take more than just a talk and discussion.  It’ll take hard work, commitment, and, of course, compromise.

I’ve said it many times before and I’ll say it again today: I’m willing to work with anyone – Republican or Democrat – to reform our nation’s tax code.  And, I look forward to continuing this effort in the 114th Congress and, if necessary, beyond.

I yield the floor.