Contact Information:

Center for
Freedom and Prosperity
 P.O. Box 10882
Alexandria, Virginia 22310-9998
Phone: 202-285-0244
Fax: 208-728-9639

Daniel J. Mitchell

 June 3, 2002

The Washington Times
3600 New York Ave., NE
Washington, DC 20002

Dear Editor,

Senator Grassley makes several questionable assertions in his response ("A new tack on tax reform," June 2) to my May 8 column on corporations re-chartering in low-tax jurisdictions. For instance:

  • He writes that he has "…no problem with U.S. companies operating in low- or no-tax jurisdictions…" but argues that this should not be allowed when the company merely "…creates a piece of paper in a filing cabinet in a tax haven where the company conducts no business." Yet if this is the guiding rule, Sen. Grassley should introduce legislation requiring a huge number of Fortune 500 corporations to move their headquarters and factories to Delaware, since that is where many of them are chartered even though they have little or no business in the state.
  • He writes that some expatriations "generate bogus tax deductions," often involving loans from the foreign parent to the U.S. subsidiary. Yet this has nothing to do with expatriations since similar issues exist with U.S.-chartered companies and all other foreign companies. It is an issue for the bureaucrats at the IRS who are responsible for monitoring intra-company transactions to ensure that a firm does not manipulate transaction prices for tax purposes.
  • He writes that "Companies that nominally move their headquarters to Bermuda and keep their operations in the United States retain access to a full array of U.S. taxpayer-funded amenities," and that it is unfair for these companies "…to slice their tax obligation without cutting their use of federal services." Yet even the most simple analysis would show that companies pay far more in tax than they get in supposed benefits from government spending. In any event, Senator Grassley's argument is baseless since expatriating companies continue to pay tax to the IRS on all income earned in the United States.
  • He writes that expatriations are "immoral" because the exit tax imposed on expatriating companies has been reduced because share prices have dropped due to "…economic conditions created by the lingering recession and the terrorist attacks." Yet this assumes that it is somehow wrong for taxpayers to legally minimize their tax burdens, which presumably means that everyone who deducts home mortgage interest and charitable contributions is "immoral." This is a staggering assertion, one that implicitly assumes that politicians spend money better than the people who earn it.
  • Finally, he writes that he agrees with me that our "international tax rules are flawed," and promises to reform those anti-competitive policies. This is a welcome sentiment, and I hope that the Senator will aggressively push reforms such as territorial taxation that will allow U.S. companies to compete on a level playing field with foreign competitors.

The internal revenue code is a millstone around the neck of U.S.-based companies. The U.S. corporate tax rate the fourth highest among developed nations and that excessive rate is imposed on income earned in other nations. Policy makers such as Senator Grassley should fix those flaws, not impose additional burdens on companies that will wind up hurting American workers, American consumers, and American shareholders.


Daniel J. Mitchell

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