Republicans, Democrats discuss revenue collection at tax reform hearing

A top corporate executive said at a House hearing Thursday that the tax system need to be changed to make American businesses more competitive, even if those changes aren’t at first revenue-neutral.

Robert McDonald, the chief executive of Procter & Gamble, told the House Ways and Means Committee that the current corporate tax code was hurting businesses in the global hunt for consumers, that the United States would soon have the highest corporate tax rate among countries in the Organization for Economic Development.

“We believe it’s best to take a look at getting a competitive system first,” said McDonald, who was testifying in his position as chairman of the Business Roundtable’s Fiscal Policy Initiative. 

McDonald added that a group of corporate CFOs had met with Treasury Secretary Timothy Geithner last week. “And revenue neutrality, we asked to take that off the table for now,” he said, “and let’s just agree that what we want to do is do something that’s fiscally responsible.”

Those comments came at the Ways and Means Committee’s first hearing of the new Congress and on a topic where both Democrats and Republicans have found some very general agreement: tax reform.

But Thursday’s hearing also appeared to show how much more difficult the conversation over the nation’s tax codes could become when lawmakers look more deeply into the details. And, in some ways, talks at the hearing also mirrored the debate in the last Congress over the Bush tax cuts, with Republicans and Democrats sparring over whether revenue lost in a tax reform package would eventually be made up.

The hearing also came just weeks after the leaders of President Obama’s bipartisan fiscal commission made closing tax loopholes and lowering rates part of their plan to lower the deficit. 

“I think it's imperative that we — that we not punish the job creators, and I think as the charts have shown, a high corporate tax rate does, in fact, punish job creators because we live in a global economy,” Rep. Tom Price (R-Ga.) said at the hearing, adding that many on his side of the aisle believe “a decrease in corporate tax rates actually increases revenue to the federal government.”

For his part, Rep. Lloyd Doggett said it was appropriate that the hearing was happening while President Hu Jintao of China was in town and implied that making a tax reform deal that was not revenue-neutral would be as misguided as extending the Bush tax cuts. 

“Because the first question that needs to be answered in this debate is how much more America will borrow from the Chinese so that some corporations can pay less,” the Texas Democrat said. Doggett later asked if lawmakers shouldn’t be more worried about leveling the playing field for smaller corporations — “the ones that are the real engine for economic growth,” as he put it. 

There also was some disagreement among witnesses about whether, as Rep. Richard Neal (D-Mass.) said, “tax cuts pay for themselves” and about how much revenue a reform package should look to recoup.  

Nina Olson, the nation’s taxpayer advocate, said in her prepared testimony that she favored a revenue-neutral plan.

“Although there is widespread recognition that we ultimately take steps to reduce our current deficit levels, I believe that if we attempt to solve those issues through tax reform, we will never achieve structural tax reform,” said Olson, who released a report earlier this year saying reform should be a top priority.

Even with all the back-and-forth, most participants seemed to think Thursday’s hearing — which Rep. Dave Camp (R-Mich.), the committee’s chairman, called the first in a series — was a productive start to the conversation on tax reform. But the get-together also reinforced a football metaphor Rep. Sandy Levin, the committee’s ranking member, made in his opening statement. 

“I hope this hearing will, indeed, move the ball forward, though let's not expect any touchdowns,” the Michigan Democrat said. “It's a long way from the goal line.”