For Immediate Release
Tuesday, March 12, 2002
202-285-0244
 www.freedomandprosperity.org

Tax Reform, not Fiscal Protectionism, is the
Right Response to Corporate Flight:
CFP Reiterates Call for Territorial Taxation

Washington (March 12, 2002) – The Center for Freedom and Prosperity, the nation's leader in the fight for international tax competition, announced today that it will vigorously resist all legislation to restrict the freedom of companies to locate in jurisdictions that have more attractive tax and regulatory environments. Andrew Quinlan, President of the Center, remarked, "Fiscal protectionism is bad policy, and the Center for Freedom and Prosperity will oppose and work vigorously to defeat any legislation seeking to stifle tax competition."  Quinlan explained that, "High-tax California should not be allowed to stop companies from moving to low-tax Nevada, and Washington politicians likewise should not be able to stop companies from escaping bad U.S. tax law."

The United States taxes American-based companies on income earned in other nations. This "worldwide" system of taxing corporate income is thought to be very anti-competitive, causing many companies to give up their U.S. charters and instead become foreign-based companies. This has created a debate. On one side are lawmakers who want to meet the challenge of foreign competition, preferably by junking "worldwide" taxation and instead shifting to a "territorial" system that would only tax companies on their U.S. income. On the other side are politicians who want to preserve "worldwide" taxation and instead impose restrictions on the ability of companies to re-charter in other jurisdictions. Representatives Richard Neal (D-MA) and Scott McInnis (R-CO), for instance, have introduced similar bills, H. R. 3884 and H.R. 3857 respectively, that would allow the IRS to tax the non-U.S. income of non-U.S. companies.

Proponents assert that legislation is needed because companies choosing to re-charter in other jurisdictions will evade or avoid U.S. tax, but Daniel Mitchell, Heritage Foundation Senior Fellow, dismissed this charge. "All corporations, regardless of where they are based, pay tax to the IRS on all profits they earn in the United States," he explained. Responding to the charge that these companies are being unpatriotic since expatriation means they no longer would be obliged to pay taxes to the IRS on income they earn outside America's borders, Mitchell said, "America should not be taxing income earned in other nations. If politicians want to preserve bad tax law, they are the ones who should be blamed when companies are forced to relocate." 

Veronique de Rugy of the Cato Institute added, "The correct response is to fix the internal revenue code. These companies are relocating because worldwide taxation makes it very difficult for U.S.-chartered firms to compete. Territorial taxation is the answer." She also explained that, "Expatriation helps U.S. workers and U.S. shareholders. The newly formed foreign company still maintains its U.S. operations, but now is able to more effectively compete with businesses that operate overseas."

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For additional comments:

Andrew Quinlan can be reached at 202-285-0244, quinlan@freedomandprosperity.org
Dan Mitchell can be reached at 202-608-6224, dan.mitchell@heritage.org
Veronique de Rugy can be reached at 202-218-4601, vderugy@cato.org

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