Louisiana Republican Sen. John Kennedy took the time during a Tuesday hearing to grill a very progressive tax law professor on Tuesday. All he wanted was an answer about why so many wealthy people are fleeing New York City, a question with a pretty obvious answer, but the victim of his grilling refused to give the answer he wanted, which is that high crime and taxes are to blame.
That professor was Kimberly Clausing, a former Biden Administration official who is now a UCLA Tax Law and Policy professor.
Kennedy, asking her about the New York City situation, asked “Why do you think so many wealthy people are leaving New York City?”
Without giving an answer, she jumped into a defense of how great the city supposedly is, saying, “New York City is an incredible city of innovation, immigration, entrepeneurship-”
Kennedy wasn’t having it. He jumped back in and pressed for an answer to his question, asking, “Why but why are wealthy people leaving?”
Clausing again refused to answer and started cheering New York City yet again, saying, “I think there are big advantages to living near centers of entrepreneurial activity and we see that on the west coast.”
Kennedy then dropped a question that humiliated Clausing by exposing the ridiculousness of her statement, saying, “You think they’re leaving to be nearer to centers of entrepreneurial activity, do you?”
She then said that people aren’t, in fact, fleeing New York City, saying, “Well I don’t think there are people who are fleeing New York City-”
Sen. Kennedy gain cut in to show how ridiculous that assertion was, telling her, “Sure there are! There’s thousands. Study after study after study. Why are so many wealthy people leaving New York City?”
Clausing then acted as if some people sticking around means the city is still great, saying, “I think there’s an enormous number of wealthy people who are in New York City.”
Kennedy continued to press her. “But why are so many leaving?” Kennedy asked. She again refused to answer the question, saying, “I can’t speak to why particular people are-” And at that point, Kennedy had had enough. Answering his own question as she tried to jump back in, he said, “I can tell you why, it’s taxes. You know that, as well as I do, it’s taxes. Some of it’s crime. But most of it is taxes. People vote with their feet the same reason people are leaving California and moving to Austin.”
Watch him humiliate her here:
— John Kennedy (@SenJohnKennedy) April 19, 2023
The hearing at which Clausing appeared was called “A Rigged System: The Cost of Tax Dodging by the Wealthy and Big Corporations.” In her testimony, she said:
Simple reforms to our business tax system can improve the system across multiple dimensions: generating more revenue, reducing offshoring incentives, enhancing competition and economic efficiency, and resulting in a fairer tax system. Given the importance of today’s high levels of deficits and debt, it is particularly important to reform the tax system in a way that counters systematic sources of tax avoidance.
In my testimony today, I will discuss four crucial flaws in today’s corporate tax system. First, current law contains large tax preferences for foreign income relative to domestic income, fueling offshoring and profit shifting. Second, as a consequence of current law incentives, we give up large revenues by failing to reform our tax system. Third, the current system favors a small number of large multinational companies, companies that often wield significant market power; these tax preferences inhibit the ability of smaller businesses to compete in free and fair markets. Finally, tax avoidance reduces the fairness of our tax system, benefiting corporate shareholders at the expense of middle-class taxpayers.
Despite her interaction with Sen. Kennedy, some of what she said was quite reasonable and even something that MAGA Republicans would agree with her on. For example, at one point she described how multinational corporations are favored at the expense of domestic corporations, saying:
Current U.S. tax law provides perverse incentives to earn income offshore; indeed, I have often referred to this system as “America-last” tax policy. U.S. income is taxed at a 21 percent rate from the first dollar of taxable income earned. In contrast, compare the U.S. tax treatment of foreign income reported in a zero-tax jurisdiction. The first ten percent return on foreign tangible assets is tax free, and subsequent income beyond that ten percent return is taxed at a 50 percent discount relative to domestic income. These rules provide strong incentives to move tangible assets offshore (to increase the tax-free return) and to book income offshore (to benefit from the 50 percent deduction). Consequently, it is hardly surprising that U.S. multinational companies report large profits in many jurisdictions with rock-bottom tax rates. Figure 1 shows the share of U.S. multinational company income in seven important low-tax rate jurisdictions. Despite changes in U.S. tax law, and some changes in tax laws abroad, that share has remained very high. In the five years prior to TCJA (2013-2017), the low-tax share averaged 61 percent; the present low-tax share is 56 percent.
Featured image credit: screengrab from the embedded video
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