Strong Lobby Mounted Against Corporate Tax Legislation

Tax-News.com, Washington

25 April 2002

Washington-based Center for Freedom and Prosperity is one of more than 20 influential US free-market groups which have written to key members of Congressional committees to try to persuade them not to legislate against US companies relocating to Bermuda and other offshore jurisdictions, but instead to change the basis of corporate taxation to remove disincentives for international companies to base themselves in the US.

Andrew F. Quinlan, President of the Center for Freedom and Prosperity, said, "We should not punish workers, consumers, and shareholders by restricting the right of companies to adopt a new home country. Lawmakers should make America's tax system more attractive instead of imposing protectionist barriers against the free flow of goods and services."

The letter was sparked by the growing controversy over whether corporations should be allowed to re-locate in a jurisdiction with better tax policy. The United States taxes American-based companies on income earned in other nations. This "worldwide" system of taxing corporate income is very anti-competitive, which is why many companies are choosing to become foreign-based companies. Some lawmakers argue that tax reform is the best way of making America more competitive, but others – led by Senators Max Baucus (D-MT) and Charles Grassley (R-IA) – want to impose new laws that arbitrarily declare that certain companies are U.S. taxpayers regardless of where they are chartered.

The 25 organizations that signed the letter believe that tax reform is the right approach. The wide-ranging coalition specifically urges Congress to junk the current "worldwide" tax system and instead shift to a "territorial" system that would tax companies only on their U.S. income. Daniel Mitchell of the Heritage Foundation said, "Territorial taxation will end corporate expatriations, The Baucus-Grassley legislation, by contrast, should be called the Dred Scott tax bill. It assumes that companies belong to the government and that they should not be allowed to protect workers, consumers, and shareholders by escaping to jurisdictions with better tax law."

The letter specifically addresses the current Capitol Hill and media hysteria over corporate relocation, explaining that: "This issue already has been clouded by demagoguery. Some assert that companies choosing to re-charter in other jurisdictions will evade or avoid U.S. tax. This is not true. All corporations, regardless of where they are based, pay tax to the IRS on all profits they earn in the United States. Some also claim that 'expatriation' is unpatriotic and hurts America. This is nonsense. Re-chartering helps U.S. workers and U.S. shareholders since the newly formed company still maintains its U.S. operations, but now is able to more effectively compete with businesses that operate overseas."

Veronique de Rugy of the Cato Institute said, "The Baucus-Grassley bill is a combination of protectionism and imperialism. Instead of trying to punish the corporate victims of bad tax law, members of Congress should lower tax rates and adopt a territorial system so firms will have a reason to remain in the United States." Stephen J. Entin, President of the Institute for Research on the Economics of Taxation (IRET) added, "If the U.S. tax system signals the market that it is more profitable to be a foreign-based corporation, what is a business to think? If Congress wants multi-national businesses to be based in the United States, it should fix the features in the U.S. tax code that are driving U.S. firms offshore and blocking foreign firms from moving here."

Grover Norquist, President of Americans for Tax Reform said, "Taxpayers do not belong to government, and there is no reason to blame the victims of bad policy. Instead, Grassley and Baucus should fix the problems in the tax code that are forcing companies to relocate."

Eric Schlecht of the National Taxpayers Union explained that, "Rather than chase American businesses to foreign shores, Washington should be enticing foreign investment into the United States by lowering the tax rate, simplifying the tax system, and enacting broad-based tax reform."

The Coalition for Tax Competition sent identical letters to Senator Max Baucus, Chairman, Senate Finance Committee, Senator Charles Grassley, Ranking Member, Senate Finance Committee, Representative William Thomas, Chairman, House Ways and Means Committee and Representative Charles Rangel, Ranking Member, House Ways and Means Committee. Copies of the letter were provided to Bush Administration policy makers.

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