For Immediate Release
Wednesday, May 22, 2002
202-285-0244
 www.freedomandprosperity.org

Treasury's Mixed Message on Inversion:
Report Properly Blames Tax Code for Expatriations,
But Policy Prescriptions Fall Short

The following are statements by Andrew Quinlan, President of the Center for Freedom and Prosperity, Daniel Mitchell, Senior Fellow at the Heritage Foundation, and Veronique de Rugy, Policy Analyst at the Cato Institute, on the recent release of the Department of the Treasury's report on corporate inversion.

Andrew Quinlan:
The Treasury's report is an indictment against America's complex and indefensible international tax rules. It correctly states that:

1) "…no country has rules for the immediate taxation of foreign-source income that are comparable to the U.S. rules in terms of breadth and complexity."

2) "[A U.S.-based company is at a] disadvantage relative to the foreign competitor… U.S.-based company has less income to reinvest in its business, which can mean less growth and reduced future opportunities for that company."

3) "A comprehensive reexamination of the U.S. international tax rules is needed. It is appropriate to question the fundamental assumptions underlying the current system. We should look to the experiences of other countries and the choices that they have been made in designing their international tax systems. Consideration should be given to fundamental reform of the U.S. international tax rules[.]"

Treasury needs to turn these good words into concrete action. Unfortunately, the report does not endorse territorial taxation. Even more worrisome, it calls for higher taxes on foreign-based companies that create jobs in America.

Daniel Mitchell:
The President's team deserves credit for identifying serious flaws in the internal revenue code. The Treasury report also explains why fiscal protectionism, such as the Baucus-Grassley "Dred Scott Tax Act," would be foolish. But Treasury fell short when it came time to make recommendations. Instead of endorsing territorial taxation and lower corporate income tax rates, it suggested punitive measures against foreign-based companies. The Bush Administration should have learned from the steel tariff fiasco that protectionist policies are never the answer.

Veronique de Rugy:
This report seems to demonstrate that Treasury Secretary Paul O'Neill understands that U.S. firms re-incorporate in low-tax jurisdictions like Bermuda because the internal revenue code - particularly America's worldwide tax system and high corporate income tax rate – puts them at a competitive disadvantage. The report also recognizes that fiscal protectionism, such as the proposals of Senators Baucus and Grassley and Representatives Johnson, Neal, and McInnis, are misguided policy that would damage our economy. The unanswered question, of course, is whether Treasury will support proposals to make America more attractive to the world's investors.

Links:

Treasury's Press Release:
http://www.treasury.gov/press/releases/po3109.htm

Treasury's Report
http://www.treas.gov/press/releases/docs/inversion.pdf

CFP's Corporate Expatriation:  Protecting American Jobs Page:
http://www.freedomandprosperity.org/corpexpat/corpexpat.shtml

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The Center for Freedom and Prosperity is an Alexandria, Virginia-based, 501(c)(4) nonprofit, nonpartisan organization that lobbies Congress and the Administration on tax competition, financial privacy and fiscal sovereignty.

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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