[Congressional Record Volume 141, Number 118 (Thursday, July 20, 1995)]
[Senate]
[Pages S10331-S10333]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




        THE ORGANIZATION OF ECONOMIC COOPERATION AND DEVELOPMENT

  Mr. DORGAN. Mr. President, I would like to go to one other subject 
today briefly. It is one that almost no one knows anything about, 
including the Presiding Officer. It is called the Organization of 
Economic Cooperation and Development or OECD. It is an international 
organization that we pay 25 percent of the total cost. I do not think 
anybody in here really knows much about it. There are a lot of 
international organizations.
  This year the United States will contribute about $62 million to fund 
the OECD. We are a member of the OECD. I am told that they meet in the 
finest places in the world and are headquartered in Paris. When they 
hold a meeting, they hold a meeting in a fine, great hotel in one of 
the great cities of the world. Folks come from all over the world to 
attend OECD meetings, the Organization of Economic Cooperation and 
Development.
  One of the things they did recently is approve a report, a document 
statement, in which this country participated and signed, that talked 
about how you apportion the tax burden of international corporations 
among the countries in which they do business.
  This little document said the OECD, with the United States signing 
the document, rejects something called global formulary apportionment. 
It does not mean much to anybody. But what it means to me is this 
country signs on a dotted line, along with the other member countries 
of the OECD, saying the United States is willing to give up or forgive 
about $15 billion a year in taxes that ought to be paid to America that 
will not be paid.
  Seventy-three percent of the foreign-based corporations doing 
business in the United States pays zero in Federal income taxes, 
despite the fact they earn hundreds of billions of dollars here. There 
are companies that sell cars, VCR's, television sets, and other 
products--whose names you would recognize instantly--that do business 
here every day earning billions of dollars and pay zero in U.S. income 
taxes. Not pay a little bit--pay nothing in Federal income taxes.
  Why is that? It is because the IRS is stuck with an outdated tax 
enforcement system which the foreign corporations love, and which 
foreign governments love as well. It is called the arm's-length method, 
which is used to evaluate transfer pricing that exists between related 
corporations. Tens of thousands of foreign corporations do business in 
the United States through U.S. subsidiaries that they own and control. 
These integrated companies sell things to themselves back and forth, 
and establish their own prices on those transactions. That is why we 
have examples of tractor tires being sold between corporations that are 
related for $7.50 for a tractor tire; a piano 

[[Page S10332]]
for $50; a safety pin for $29; toothbrushes for $18. Why would 
corporations price tractor tires at $7.50? Because they are moving 
profits in or out of countries with corporations they control, and that 
is called transfer pricing.
  We use a system in taxing called the arm's length methodology which 
is an archaic, buggy-whip system. It is like taking two plates of 
spaghetti and trying to attach the two ends together; taking different 
corporations and connecting them together to save in a market system. 
It is a system that is totally unworkable and unenforceable. The result 
is massive tax avoidance. This country is losing to the tune of $15 
billion a year, in my judgment, because we have not replaced this 
flawed system with a simple formula approach, as the States have used 
successfully for decades. I might say with respect to domestic 
businesses operating in different States that there is a standard 
formula that is used to apportion profits between jurisdictions using 
the amount of payroll, property, and sales as a guide. But the IRS's 
continued use of the arm's length method means we are losing $15 
billion every year from the biggest international corporations in the 
world which do not pay taxes, despite earning huge profits in this 
country.
  Our U.S. representative at the OECD signs on to an agreement that 
says we reject the use of formulary apportionment.
  So as a result of that, I wrote to the Secretary of the Treasury and 
the Secretary of State and said tell me about the OECD. Who is involved 
in these negotiations? Where were the meetings held? What corporations 
were involved to persuade them to do this? They said we cannot give you 
that information. It is confidential. You have no right to the working 
papers of the OECD. They are secret.
  I said, Wait a second. I am part of a group that funds them; about 
$62 million this year from U.S. taxpayers' will go to the OECD. You are 
saying that we do not have a right to see the information?
  I asked a series of detailed questions of both the Secretary of the 
Treasury and also of the Secretary of State to try to understand what 
is going on. The fact is you cannot get information. It is secret or 
otherwise unavailable, they say. If it is so secret, maybe they do not 
need our money. Maybe they do not need $62 million.
  I want to share with my colleagues the money that goes to OECD. At a 
time when we are saying we do not have enough money to deal with 
problems in this country, including problems of families who are 
struggling very hard, a whole range of areas, nutrition, education, and 
so on, here is what has happened to OECD, the Organization of Economic 
Cooperation and Development.
  In 1990, the American taxpayers contributed $36 million to the OECD. 
In 1995, $62 million--only 5 years later and our share nearly doubled. 
That is pretty interesting. In fact, from 1994 to 1995 the OECD, this 
little number in the State Department goes from a $50 million to a $62 
million contribution.
  We wrestle and debate on the floor of the Senate about why we have $5 
million here or $10 million there. Mr. President, $62 million now goes 
to OECD, and it is on a steep increase; nearly doubling in the last 5 
years.
  They are off making deals with international corporations, and with 
other countries in a manner that will affect us by, in my judgment, 
shortchanging us probably $15 billion a year in taxes that we ought to 
get that we will not from foreign corporations that make profits here. 
Then they said to us you have no right to see the information.
  Well, I would say to the Secretary of the Treasury, if you think that 
is going to stand, you are wrong. When the appropriations bill comes to 
the floor and you want more money, you had better be here with a lot of 
information. Otherwise, in my judgment, we are going to have a whole 
series of votes on the OECD, and you may lose a whole lot of money 
because you cannot say to us give us the money for these international 
organizations, but we do not have any interest in telling you about 
what these organizations are doing and what the policy implications are 
for this country.
  So I would say to the Secretary of the Treasury and to the State 
Department, if they are listening, that they will not enjoy the debate 
we will have when the appropriations bill comes to the floor if they 
think we should spend $50 million or about $63 million as they have now 
requested in 1996 for OECD, and still take the position that we have no 
right to the information developed by this organization.
  This is I know an arcane and difficult issue. And there are not many 
people that are even very interested in it. When I talk about the 
arm's-length method of tax enforcement versus a formulary method of tax 
enforcement, when you talk about transfer profits, transfer pricing, 
and enforcement methods, I understand why people's eyes fog over.
  But I do not understand why a small business person who starts up a 
business and makes a profit and is required to pay taxes should have to 
watch as another large international business enters the American 
marketplace, has $5 billion worth of sales, make three-quarters of a 
billion dollars in net profit and pays zero in taxes to the U.S. 
Government.
  It is not fair, and it ought to stop. We ought to expect those 
foreign corporations that do business in America to pay their 
contribution on their profits just as our Main Street businesses do 
every single day.
  There is, I know, a web of complexity about all of this. I know that 
the State Department and the Treasury Department and others view this 
in some respects as a foreign policy issue and in some respects as an 
economic policy issue--only they understand and no one else is capable 
of understanding.
  I might say the Senator who is presiding at the moment was recently a 
Governor of a State. The States faced this problem. They faced it 
because we have a lot of businesses that do business in every State in 
the Union, and the question was, how do we divide their profits? How do 
we know what part of their profits go to Indiana, Ohio, or North 
Dakota?
  The States grappled with this and came up with a three-factor 
formula, and they said we are going to pass something called UDITPA, 
uniform division of income tax--payroll, property and sales. You make 
$10 million and 1 percent of your payroll, 1 percent of your property, 
and 1 percent of your sales were in that State, then 1 percent of that 
profit should be allocated as the tax base, and that is the way it 
worked.
  The fact is the States have led on this issue for decades; they 
solved this problem. And you look at what the Federal Government is 
doing with international corporations with exactly the same problem, 
and they are using a buggy-whip approach that is losing billions of 
dollars.
  More importantly than losing the money, we have created the situation 
where we say to foreign corporations, You come in here and do business 
and you will receive a major advantage. You can do business and play a 
game so that you do not have to pay any taxes, but the American 
businesses that stay here at home and do business only here at home 
must pay certain taxes on their profits.
  What is the consequence? The consequence is that the American 
business is disadvantaged because the foreign competitor gets by tax 
free. And that is the problem here.
  I have alerted by letter and received apparently one giant yawn from 
the bureaucracy of this problem, and I wanted to alert them that they 
are not going to have a very pleasant August and September with their 
appropriations bills if they think they can tell folks in the Congress 
that they want $63 million for an international organization which send 
its representatives to the finest hotels in the world to meet for a 
while and sign documents that, in my judgment, contravene this 
country's interests, and then say to us who appropriate the money, 
``Take a hike'' when we ask them to show us the documents that were 
used and all of the information that was developed in the construct of 
this policy.
  Mr. President, it was therapeutic, if nothing else, to be able to 
talk about this in the Chamber this morning, and we will have a 
lengthier discussion on this subject when their appropriations bills 
come forward.


                             Line-Item Veto

  Mr. President, let me make one final point. I will again be 
addressing the question of a line-item veto in the 

[[Page S10333]]
coming days because it is time for the House to appoint conferees, time 
for a conference, time to have a line-item veto. I want to find out who 
is interested in producing a line-item veto versus who is interested in 
providing pork. If we are interested in the line-item veto, and I am--
and I guess I voted for it 15 or 20 times in my career--I hoped when I 
voted for it in March we would not be debating in July whether or not 
we are going to have a line-item veto. Some apparently have decided to 
move into slow motion here while there is a Democrat in the White 
House. That is not the way the line-item veto works. And while we see 
headlines that say ``Gingrich Gets $200 Million in New Pork,'' I would 
ask, where is the line-item veto?
  Pork is bipartisan and done on a bipartisan basis. I would like to 
have a line-item veto in the hands of Democrat or Republican Presidents 
to address it. If someone has some notion of where this bill is or what 
is holding it up, maybe we can find out if we can get a line-item veto 
in the hands of this President before these appropriations bills get to 
the White House.
  Mr. President, I yield the floor.
  Mr. President, I make a point of order a quorum is not present.
  The PRESIDING OFFICER. The clerk will call the roll.
  The assistant legislative clerk proceeded to call the roll.
  Mr. SANTORUM. Mr. President, I ask unanimous consent that the order 
for the quorum call be rescinded.
  The PRESIDING OFFICER. Without objection, it is so ordered.
  Mr. SANTORUM. I thank the distinguished Presiding Officer.

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