Testimony of H. Richard Kahler on Permanent Normal Trade Relations with China

Michael R. Bonsignore On Behalf of The U.S.-China Business Council and The Business Roundtable Testimony before the House Ways & Means Committee

The Business Roundtable Applauds Congressional Passage Of Permanent Normal Trade Relations With China

We do not have all the answers; indeed, we don’t even know all the questions. We do know that in this New Economy of unprecedented technological change, identifying the driving forces that will determine our future demands cooperation between government and business leaders.

The U.S. economy is characterized by:

• All-time high levels of productivity, with standard measurements no longer adequate to predict the dynamic pace of growth.
• Full employment as a reality, not an unattainable goal.
• New ways of doing business - such as e-business - that will only accelerate, challenging our very assumptions about the potential for future economic growth.

In the next four years, business and government will need to communicate more effectively and more rapidly than ever before to meet the challenges of the New Economy. To sustain this unprecedented growth, we know we must:

• Implement sound fiscal and international trade policies that maintain our leadership and credibility in global financial markets, enhance our industrial base, and grow our global manufacturing competitiveness.
• Increase the number of export-related jobs and increase the lifelong accessibility of educational opportunities for all Americans.
• Restore fairness, balance and predictability to our civil justice system.
• Streamline and provide greater flexibility to what is too often an excessively centralized and cumbersome regulatory system.
• Reverse the slide in federally funded research and improve the mechanisms for downstream development with the private sector.

We recommend that the Democratic Platform advocate the following:

Reinvigorate International Trade and Investment Negotiations: We need new international trade negotiations to remove the remaining foreign trade barriers to U.S. exports and investment and to prevent countries from erecting new barriers. Unfortunately, major multilateral, regional and bilateral negotiations involving the United States are at a standstill, while our trading partners are negotiating new regional and bilateral agreements. The platform should advocate reinvigorated WTO, FTAA and APEC negotiations and pursue new bilateral initiatives where appropriate.

• Support "Fast Track" Authority: The United States lead role in global economic growth has fueled the longest running economic expansion in U.S. history. The President should have "fast track" trade negotiating authority. This authority allows flexibility to negotiate and implement strong agreements with our trading partners to further reduce global trade barriers and grow the number of export-related domestic jobs.

Simplification & Certainty: Overly complex tax rules can place an extensive, and costly, compliance burden on American business. Such rules can foster inefficiency and uncertainty in all aspects of a company's operations, whether it be investment in new equipment or research projects, to the conduct of overseas businesses. Moreover, the compliance process itself consumes financial resources, which could support more productive activities.

• Support a Permanent R&D Tax Credit: R&D is a classic case of a "public good," for which private funding tends to be inadequate because sponsors have special difficulties in realizing the economic returns of their investments. Not too long ago the R&D credit was taken off an annual renewal cycle and put on a five-year schedule. It should be made permanent now.
• Modernize Tax on International Business Operations: The corporate income tax should be modernized in its application to international business. This area of the tax law is out of date for the realities of global economic competition. The tax on international business should be lower and simpler. Many countries do not tax the foreign operations of their home-based companies at all. In contrast, the United States taxes such foreign operations, often overtaxes them, and does so in the most complex ways imaginable.
• Lower the Corporate Tax Rate: Lowering the corporate income tax rate is the most effective form of corporate tax reduction. Today’s high rate is a relic of deficit-cutting and obsolete politics. A lower tax rate would affect all types of corporations, big and small, in all lines of business and all parts of the country. It would make funds available for economic projects that have the best prospects for creating value and continuing growth. The corporate rate was increased in 1993 from 34% to 35% to help eliminate the deficit. At a minimum, this 1993 increase should be repealed.

The platform should demonstrate a clear commitment to fiscal discipline and budgetary accountability. Overall federal spending should be appropriately constrained and surplus federal funds should be dedicated to reducing the federal debt. Any effort to use budget gimmicks or unrealistic projections to disguise actual expenditures should be rejected. A budget framework based on sound economics and accurate forecasts will boost the confidence of the global capital markets in the party’s commitment to fiscal reliability.

• Priority of Tax Cuts: To the extent that federal budget surpluses are not used to reduce the national debt, they should be converted into tax cuts that sustain economic growth.
• Individual/Corporate Mix of Tax Cuts: Any significant federal tax reduction should include a corporate tax cut. Under a policy-neutral guideline, taxes would be cut in the same proportion as they have contributed to eliminating budget deficits. This translates into a $1 corporate income tax cut for every $4 of cuts in individual income taxes, the proportion that prevailed since the current economic expansion began in 1992 and deficits disappeared in 1998.

The President, through effective use of the "bully pulpit" and thoughtful shaping of the federal government's limited role in K-12 education, can promote student achievement of higher academic standards and champion research and evaluation on best practices in education.

• The federal government, in its role as an employer, should adopt model practices used by other employers to promote higher student achievement, e.g., asking recent graduates for their school transcripts.
• The federal government should stimulate improvements in math, science and technology education by encouraging public/private partnerships to support innovative and effective programs developed at the state and local district levels.
• The federal government should work with the nation's governors, educators and businesses to stimulate the development and use of the most innovative communications technology to make information on "best practices" accessible to educators and parents.
• Finally, the federal government should make independent, non-partisan research and evaluation on best practices in education a top priority.

Social Security plays an important role in the lives of all Americans and should continue to provide an essential floor of support for retirees, survivors and the disabled. The current system, however, is financially unsustainable. The platform should take a leadership role in championing improvements in the Social Security system that are consistent with free market principles including reasonable financing, adequate funding, proper accounting and individual choice. Those improvements should include mandatory individual accounts designed in a manner that strikes an appropriate balance between administrative feasibility and the need to minimize government involvement.

A Presidential office committed to scientific research should be created within the White House. This office needs to have as one of its top priorities the improved coordination between the private and public sector research communities. While the federal government should not be in the job of picking winners and losers in the development of new technologies, there should be better "delivery" mechanisms between the pure research investments made by the public sectors and the applied research investments made by the private sector.

Congress and federal agencies have jointly contributed to a regulatory system – especially in the environmental arena – that is overly complex, burdensome, opaque, inconsistent, and inefficient. Agencies are not required to, and do not, uniformly and transparently promulgate regulations that achieve maximum public benefits with the least costs or burdens. The allocation of responsibility between the federal and state governments often doesn’t meet the needs of new or changing circumstances. Electronic commerce and a global marketplace require business to innovate, respond to consumer needs, and deliver products and services with a speed and flexibility hitherto unknown in the commercial marketplace. Traditional command-and-control environmental regulation is often antagonistic to these objectives.

The new administration should pursue environmental, health, and safety objectives through a result-oriented framework that encourages technological innovation and open global markets. Where regulation is necessary, risk-based performance standards should be favored over mandates for particular technology. Rules should comply with criteria that dictate cost-effectiveness, a preference for flexible regulatory mechanisms, and an assessment of reasonable alternatives for significant regulatory proposals. State action should be preferred to address localized environmental issues, and federal overfiling and duplicative permitting programs should be eliminated. The basis for rules should be grounded on better quality science developed at the federal level. Adoption of legislation advancing these objectives should be encouraged.

The next Administration should:

• Adopt a new Executive Order governing new regulations and regulatory review that contains very specific directions that agencies:
  • Pursue market approaches before considering command-and-control regulation
  • Adopt only regulations that are cost-effective and whose benefits fully justify their costs
  • Explore and assess alternatives to any proposed regulatory approach and fully disclose analyses and
  • Provide for enforcement of these standards by OMB
• Adopt a new Executive Order on grounding regulatory decisions on sound science, requiring that agencies developing health and safety regulations:
  • Base rules on scientifically objective, plausible, and transparent risk assessments and characterizations
  • Ground risk assessments upon careful analysis of the weight of scientific evidence and best available, relevant, and current scientific and technical information and
  • Establish government-wide guidelines for use of sound science
• Set out an agenda marshalling federal agency efforts for a public-private partnership for research on strategic environmental issues, such as climate change technologies, industrial ecology, and environmental impact of genetically modified organisms.
• Call for reconvening a hybrid Administrative Conference of the U.S./Advisory Committee on Intergovernmental Relations, to be charged with the objective of reviewing all environmental legislation and making recommendations on how best to devolve to state and local governments the authority for addressing localized pollution and waste problems and how market mechanisms could better be used to achieve legislated goals.

Aggressive lawyer-driven litigation has resulted in a civil justice system that too often short-changes injured persons while imposing a $300 billion drain on the U.S. economy. This system undermines our nation's competitiveness by slowing the development of new products, raising prices for American consumers and hurting the investing public. The platform should support elimination of standardless punitive damages that increase the legal tax on our economy. A system based on fair share, proportionate liability should be a cornerstone of civil justice reform efforts. Legislative efforts supported by plaintiffs' attorneys to sue employers over health decisions should be rejected.

• Federal Courts should have jurisdiction over Interstate Class Actions: Federal courts should have jurisdiction over interstate class action lawsuits. In many class action cases today, most of the settlement money is paid to the plaintiffs' attorneys with very little shared with any class members. Consumers pay again when huge verdicts or settlements drive up the costs of goods and services.

Carrying out many programs and functions at the state and local, rather than at the federal level, will promote accountability, responsiveness, experimentation, and efficiency. At the same time, globalization and technology enhance the importance of national and international markets, suggesting the need for greater uniformity. Businesses can ill afford to accommodate a patchwork quilt of state regulatory directives. This militates towards a greater role for the federal government where regulation of commerce is implicated. As a general matter, the higher the cost to industry of 50 different state regulatory systems and the more the issue is interstate, the more the responsibility should be vested in the federal government. The lower the cost, the more localized the problem and the greater the need for experimentation, the more the scale should tip toward state authority.

Where patchwork regulation will impede commerce, the shared objective of a vibrant national and competitive international business section suggests that states should ordinarily refrain from intervening. These areas include regulating product safety or labeling; applying state tort law to products manufactured in compliance with federal regulation; sanctioning businesses based upon foreign policy considerations; and adding inappropriate requirements to federally regulated transactions. Likewise, recognizing the benefits of local regulation of local problems, the federal government should ordinarily defer to states for addressing local pollution abatement, hazardous waste site clean-up, and reclaiming brownfields. Finally, where program administration has been placed under state authority, fairness and efficiency would dictate that federal agencies defer to the states on enforcement of those programs.

The member companies of The Business Roundtable are the fuel helping to drive American economy, which has provided unparalleled opportunity for millions of Americans, particularly over the past decade. We are all committed to seeing this growth continue, and we have provided here a blueprint for government action and focus that can help America maintain its role as the world leader of peace and prosperity. We urge the platform to reflect these values and policies that will – in the words of your 1996 platform – "renew our historic pledge to uphold and advance the promise of America – One nation, under God, indivisible, with liberty and justice for all."