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Fair and Equitable Tax Policy for America's Working FAIR AND EQUITABLE TAX POLICY FOR AMERICA’S WORKING FAMILIES HEARING BEFORE THE COMMITTEE ON WAYS AND MEANS U.S. HOUSE OF REPRESENTATIVES ONE HUNDRED TENTH CONGRESS FIRST SESSION SEPTEMBER 6, 2007 Serial No. 110–58 Printed for the use of the Committee on Ways and Means ( U.S. GOVERNMENT PRINTING OFFICE 43–307 WASHINGTON : 2008 For sale by the Superintendent of Documents, U.S. Government Printing Office Internet: bookstore.gpo.gov Phone: toll free (866) 512–1800; DC area (202) 512–1800 Fax: (202) 512–2104 Mail: Stop IDCC, Washington, DC 20402–0001 VerDate Nov 24 2008 00:21 Mar 26, 2009 Jkt 043307 PO 00000 Frm 00001 Fmt 5011 Sfmt 5011 E:\HR\OC\A307A.XXX A307A smartinez on PROD1PC64 with HEARING COMMITTEE ON WAYS AND MEANS CHARLES B. RANGEL, New York, Chairman FORTNEY PETE STARK, California JIM MCCRERY, Louisiana SANDER M. LEVIN, Michigan WALLY HERGER, California JIM MCDERMOTT, Washington DAVE CAMP, Michigan JOHN LEWIS, Georgia JIM RAMSTAD, Minnesota RICHARD E. NEAL, Massachusetts SAM JOHNSON, Texas MICHAEL R. MCNULTY, New York PHIL ENGLISH, Pennsylvania JOHN S. TANNER, Tennessee JERRY WELLER, Illinois XAVIER BECERRA, California KENNY C. HULSHOF, Missouri LLOYD DOGGETT, Texas RON LEWIS, Kentucky EARL POMEROY, North Dakota KEVIN BRADY, Texas STEPHANIE TUBBS JONES, Ohio THOMAS M. REYNOLDS, New York MIKE THOMPSON, California PAUL RYAN, Wisconsin JOHN B. LARSON, Connecticut ERIC CANTOR, Virginia RAHM EMANUEL, Illinois JOHN LINDER, Georgia EARL BLUMENAUER, Oregon DEVIN NUNES, California RON KIND, Wisconsin PAT TIBERI, Ohio BILL PASCRELL JR., New Jersey JON PORTER, Nevada SHELLEY BERKLEY, Nevada JOSEPH CROWLEY, New York CHRIS VAN HOLLEN, Maryland KENDRICK MEEK, Florida ALLYSON Y. SCHWARTZ, Pennsylvania ARTUR DAVIS, Alabama JANICE MAYS, Chief Counsel and Staff Director BRETT LOPER, Minority Staff Director Pursuant to clause 2(e)(4) of Rule XI of the Rules of the House, public hearing records of the Committee on Ways and Means are also published in electronic form. The printed hearing record remains the official version. Because electronic submissions are used to prepare both printed and electronic versions of the hearing record, the process of converting between various electronic formats may introduce unintentional errors or omissions. Such occur- rences are inherent in the current publication process and should diminish as the process is further refined. ii VerDate Nov 24 2008 00:21 Mar 26, 2009 Jkt 043307 PO 00000 Frm 00002 Fmt 0486 Sfmt 0486 E:\HR\OC\A307A.XXX A307A smartinez on PROD1PC64 with HEARING C O N T E N T S Page Advisory of August 30, announcing the hearing ................................................... 2 WITNESSES Leonard E. Burman, Ph.D., Director, Urban-Brookings Tax Policy Center ....... 7 Jason Furman, Director, The Hamilton Project, Brookings Institution ............. 21 Douglas Holtz-Eakin, Senior Fellow, The Peterson Institute, and Former Di- rector, Congressional Budget Office ................................................................... 35 Stephen E. Shay, Partner, Ropes & Gray LLP, Boston, Massachusetts ............. 77 Leon M. Metzger, Former Vice Chairman and Chief Administration Officer of Paloma Partners Management Company ...................................................... 91 Janne G. Gallagher, Vice President & General Counsel, Council on Founda- tions ....................................................................................................................... 96 Suzanne Ross McDowell, Partner, Steptoe & Johnson LLP ................................ 99 Daniel J. Shapiro, Partner, Schulte, Roth & Zabel LLP, London, England ....... 105 Peter R. Orszag, Director, Congressional Budget Office ...................................... 151 C. Eugene Steuerle, Ph.D., Co-Director, Urban-Brookings Tax Policy Center, and Former Deputy Assistant Secretary of the Treasury for Tax Analysis, Reagan Administration ........................................................................................ 176 Darryll K. Jones, Professor of Law, Stetson University College of Law, Gulf- port, Florida .......................................................................................................... 181 Victor Fleischer, Associate Professor of Law, University of Illinois College of Law, Champaign, Illinois ................................................................................ 188 Mark P. Gergen, Professor of Law, The University of Texas School of Law, Austin, Texas ........................................................................................................ 199 Jack S. Levin, Partner, Kirkland & Ellis LLP, Chicago, Illinois ......................... 173 Leo Hindery, Jr., Managing Director, InterMedia Partners, New York, New York ....................................................................................................................... 225 William D. Stanfill, Founding Partner, TrailHead Ventures, Denver, Colo- rado ....................................................................................................................... 229 Orin S. Kramer, Chairman, New Jersey State Investment Council, New York, New York .............................................................................................................. 233 Jonathan Silver, Managing Director, Core Capital Partners .............................. 235 Adam Ifshin, President, DLC Management Corp., Tarrytown, New York ......... 250 Bruce Rosenblum, Managing Director, The Carlyle Group, and Chairman of the Board, Private Equity Council ................................................................. 257 SUBMISSIONS FOR THE RECORD National Association of Home Builders, statement .............................................. 00 American Prepaid Legal Services Institute, statement ........................................ 286 Chamber of Commerce, statement ......................................................................... 288 National Association of Publicly Traded Partnerships, statement ...................... 294 National Center for Policy Analysis, statement .................................................... 300 National Taxpayers Union, Alexandria, VA, statement ....................................... 303 NGVAmerica, statement ......................................................................................... 306 iii VerDate Nov 24 2008 00:21 Mar 26, 2009 Jkt 043307 PO 00000 Frm 00003 Fmt 0486 Sfmt 0486 E:\HR\OC\A307A.XXX A307A smartinez on PROD1PC64 with HEARING VerDate Nov 24 2008 00:21 Mar 26, 2009 Jkt 043307 PO 00000 Frm 00004 Fmt 0486 Sfmt 0486 E:\HR\OC\A307A.XXX A307A smartinez on PROD1PC64 with HEARING FAIR AND EQUITABLE TAX POLICY FOR AMERICA’S WORKING FAMILIES THURSDAY, SEPTEMBER 6, 2007 U.S. HOUSE OF REPRESENTATIVES, COMMITTEE ON WAYS AND MEANS, Washington, DC. The Committee met, pursuant to notice, at 10:10 a.m., in room 1100, Longworth House Office Building, Hon. Charles B. Rangel (Chairman of the Committee), presiding. [The advisory announcing the hearing follows:] (1) VerDate Nov 24 2008 00:21 Mar 26, 2009 Jkt 043307 PO 00000 Frm 00005 Fmt 6633 Sfmt 6633 E:\HR\OC\A307A.XXX A307A smartinez on PROD1PC64 with HEARING 2 ADVISORY FROM THE COMMITTEE ON WAYS AND MEANS FOR IMMEDIATE RELEASE CONTACT: (202) 225–1721 August 30, 2007 FC–14 Chairman Rangel Announces Hearing on Fair and Equitable Tax Policy for America’s Working Families House Ways and Means Committee Chairman Charles B. Rangel (D–NY) today announced the Committee on Ways and Means will hold a hearing on fairness and equity in the Tax Code. The hearing will focus on a number of tax fairness issues, including the tax treatment of investment fund managers and the impact of the al- ternative minimum tax on working families. It will also examine the reasons why investment funds are being organized offshore. The hearing will take place on Thursday, September 6, 2007, in 1100 Longworth House Office Building, be- ginning at 10:00 a.m. In view of the limited time available to hear witnesses, oral testimony at this hearing will be from invited witnesses only. However, any individual or organization not scheduled for an oral appearance may submit a written statement for consider- ation by the Committee and for inclusion in the printed record of the hearing. A list of invited witnesses will follow. BACKGROUND: In 2001, President Bush introduced an economic stimulus package that he said ‘‘erases inequities in the Tax Code or eases inequities in the Tax Code.’’ At the time, there were divisions as to whether the tax cuts would provide the stimulus effect and relieve inequities in the Tax Code as suggested by the President. In addition to analyzing the effects of the President’s tax packages, there are other aspects of our tax laws that are worthy of examination, including provisions related to invest- ment funds such as private equity funds and hedge funds. Concerns have been raised about the manner in which investment fund managers are able to structure their compensation. Others have observed that current tax rules force investment funds to form outside the United States. It is appropriate to perform a comprehen- sive examination of fairness in the Federal income tax system to ensure that our tax policy is working effectively and fairly for all of America’s working families. In announcing the hearing, Chairman Rangel said, ‘‘One of the fundamental duties of the Committee on Ways and Means is to conduct oversight of the Tax Code and ensure that our tax laws promote fairness and equity for America’s working families. This
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