August 29, 2002
The Honorable William Thomas
Committee on Ways and Means
United States House of Representatives
1102 Longworth House Office Building
Washington, DC 20515
Dear Chairman Thomas:
Our economy's performance is hampered by high tax rates, punitive over-taxation of capital, and needless complexity. We are particularly concerned that the tax code is making it very difficult for
U.S.-based companies to compete in global markets. The corporate tax rate in the United States is much too high, and we compound the damage by taxing income U.S. taxpayers earn in other countries.
In the long run, the only way to solve these problems is corporate rate reduction and territorial taxation. But there are some intermediate steps that can help. Your legislation, H.R. 5095, would
improve the competitiveness of U.S.-based companies by simplifying international tax rules and making it easier for companies to defer the U.S. tax burden on income earned outside America's borders.
Unfortunately, there also are some provisions in H.R. 5095 that would undermine economic growth. We are specifically concerned about two provisions:
- The moratorium on corporate inversions is misguided. If other jurisdictions have better tax laws than America, we should fix the problems with our tax code instead of erecting protectionist
barriers against companies that wish to re-charter. Because they are a form of "self-help" territorial taxation, inversions allow companies to compete on a level playing field with foreign competitors
and therefore protect the interests of American workers, consumers, and shareholders.
- The tax increase on foreign-based companies operating in the United States is not justified. Some argue that U.S. subsidiaries borrow "too much" from foreign parent companies in order
to deduct interest payments and shift income out of America. Yet there already are numerous laws and IRS regulations governing this process. It makes little sense to enact new laws that will reduce incentives
for foreigners to invest in the U.S. economy, especially when reductions in the U.S. corporate tax rate would eliminate any reason for a company to transfer earnings to another jurisdiction.
We applaud you for trying to fix the provisions of the tax code that make it difficult for U.S.-based companies to compete in international markets. Indeed, we strongly agree with the language from
the summary accompanying your bill: "The United States Tax Code is one of the most complex in the world. The inequities and burdens that our tax system imposes on U.S. companies, particularly those operating in
international markets, are greater than those imposed by most other nations."
Most of the provisions in H.R. 5095 make our tax system better. We hope, however, that you will reconsider the punitive inversion moratorium and the tax increase on foreign-based companies.
We look forward to working with you to make America's tax code more competitive.
Andrew F. Quinlan -- President, Center for Freedom and Prosperity
Daniel Mitchell -- Senior Fellow, The Heritage Foundation
Veronique de Rugy -- Fiscal Policy Analyst, The Cato Institute
aul Beckner -- President, Citizens for a Sound Economy
Robert B. Carleson -- Chairman, American Civil Rights Union
Stephen J. Entin -- President, Institute for Research on the Economics of Taxation
Tom Giovanetti -- President, Institute for Policy Innovation
John C. Goodman -- President, National Center for Policy Analysis
John Hood -- President, John Locke Foundation
Lawrence Hunter -- Chief Economist, Empower America
Charles W. Jarvis -- Chairman, United Seniors Association
Gordon S. Jones -- President, Association of Concerned Taxpayers
David A. Keene -- Chairman, American Conservative Union
Karen Kerrigan -- Chairman, Small Business Survival Committee
James L. Martin -- President, 60 Plus Association
Ed H. Moore -- President, The James Madison Institute
Steve Moore -- President, The Club for Growth
Grover Glenn Norquist -- President, Americans for Tax Reform
Duane Parde -- Executive Director, American Legislative Exchange Council
John Pugsley -- Chairman, The Sovereign Society
Richard Rahn -- Senior Fellow, Discovery Institute
Gary and Aldona Robbins -- President and Vice President, Fiscal Associates
Terrence Scanlon -- President, Capital Research Center
Tom Schatz -- President, Council for Citizens Against Government Waste
Eric V. Schlecht -- Director of Congressional Relations, National Taxpayers Union
Solveig Singleton -- Senior Analyst, Competitive Enterprise Institute
Lewis K. Uhler -- President, National Tax Limitation Committee
Paul M. Weyrich -- National Chairman, Coalitions for America
Christopher Whalen -- President, The Whalen Consulting Group
Neal C. White -- President, National Retail Sales Tax Alliance, Inc.
* Organizational affiliations are included for identification purposes only.
Senator Max Baucus
Senator Charles Grassley
House Majority Leader Richard Armey
Representative Charles Rangel
All Members of the House Committee on Ways and Means
Secretary Paul O'Neill
Dr. Glenn Hubbard
Dr. Larry Lindsey.