For Immediate Release
Thursday, August 29, 2002
202-285-0244
www.freedomandprosperity.org

Coalition Applauds Thomas' International Tax Reform Proposal: Urges Chairman to Drop Inversion Moratorium and Tax Increase on Foreign Companies' U.S. Operations

The Center for Freedom and Prosperity, joined by more than 30 of the country's largest and most influential free-market groups, applauded Rep. Bill Thomas, Chairman of the House Ways and Means Committee, for trying to fix the provisions of the tax code that make it difficult for U.S.-based companies to compete in international markets. In a letter sent to the Chairman today, the members of the Coalition for Tax Competition also urged Chairman Thomas to reconsider two of the major provisions in his bill (H.R. 5095) to simplify international taxes -- the punitive inversion moratorium and the tax increase on foreign-based companies that invest in the U.S. economy.

The letter to Chairman Thomas states: "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.'"

While Chairman Thomas's proposal is well received, the Coalition was unsympathetic to a couple of provisions in the legislation. The letter notes: "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."

(Text of letter below)

The following are comments from several signers of the letter:

Andrew F. Quinlan, President, Center for Freedom and Prosperity

"Bill Thomas' bill is a good first step. The Center for Freedom and Prosperity supports his effort to simplify international taxes and make the U.S. tax code more competitive. We also urge the Chairman to reconsider a few provisions. In particular, punishing companies, shareholders, consumers and taxpayers is not the way to stop corporate inversions. We must change or tax code and make the U.S. more hospitable for multinationals. Our international tax code is not competitive and inversions are the symptom, not the problem."

Daniel Mitchell, Senior Fellow, The Heritage Foundation

"The corporate tax code is a major impediment to American companies competing in world markets. The U.S. corporate tax rate is the fourth highest in the developed world and the imposition of those high tax rates on foreign-source income creates a huge advantage for companies based in other nations. Chairman Thomas correctly understands that tax reform will create a more level playing field for U.S.-based companies and that this will be good news for American workers and American consumers."

Veronique de Rugy, Fiscal Policy Analyst, The Cato Institute

"The United States should have a territorial tax system – the common sense notion that governments only taxes income earned inside national borders. The Thomas legislation is a small but important step in that direction. But the bill could be improved by dropping the inversion moratorium, a provision that is best characterized as fiscal protectionism."

Grover Norquist, President, Americans for Tax Reform

"I applaud Chairman Thomas' first step towards reforming our complex and burdensome tax code. For the United States to remain a leader in the global economy, our international taxes must remain competitive with other nations. Yet, much more needs to be done on this issue and I look forward to creating a more pro-growth tax code."

Eric V. Schlecht, Director of Congressional Relations, National Taxpayers Union

"Rather than heed the reactionary calls from some to enact further punitive laws that would worsen American corporations' competitive disadvantage in the global market, Chairman Thomas has wisely chosen to address the complexity and inequities that currently pollute U.S. tax policy. It is our hope that this bill represents but a first step in the continuing effort to reform our tax code."

A complete list of the free-market groups can be found below at the bottom of the letter.

###

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
Grover Norquest can be reached at (202) 785-0266, friends@atr.org
Eric Schlecht can be reached at 703.683.5700, ntu@ntu.org

=========================================================

August 29, 2002

The Honorable William Thomas
Chairman
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.

Sincerely,

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.

cc:
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

Return Home