[Congressional Record Volume 142, Number 2 (Thursday, January 4, 1996)]
[Senate]
[Pages S51-S53]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        THE GOVERNMENT SHUTDOWN

  Mr. KENNEDY. Mr. President, we have heard, during the course of the 
morning, that this is really just a question about the various funding 
and how we will be able to get the resources to be able to move toward 
a balanced budget. I think it is important that as we see this process 
hopefully move forward, that the American people are going to 
understand the various options which we can take that make that 
progress.
  I want to address the Senate on the fairness issue in reaching the 
balanced budget, because I think all of us know if it was just a 
question of figures, anyone could reach the balanced budget by 
slashing, burning and ending various kinds of programs. The question 
is, how are we going to reach that objective and do it in a way that 
will be fair, meeting the standard of fairness to the American people. 
I think it will only be if the proposal that is agreed on, and 
hopefully it will be agreed on by the Congress and by the President, 
will meet that standard of fairness, and will be acceptable by the 
American people. That is a fair test.
  I want to address the Senate for a few moments this afternoon on a 
very important aspect of what I think is the issue of fairness. The 
original Republican budget plan was properly vetoed by the President 
because it failed to meet this test of fairness. It inflicted deep cuts 
in Medicare, Medicaid, education, the environment, and other important 
national priorities, and included large tax breaks for wealthy 
individuals and corporations.
  Half of all the spending cuts in the Republican plan came from the 
bottom 20 percent of families in America while only 9 percent of the 
cuts came from the top 20 percent of families in America. Two-thirds of 
the tax breaks in the Republican plan go to the same top 20 percent of 
Americans, while the bottom 20 percent would face a tax increase. The 
middle 60 percent of Americans would also be hit unfairly. They would 
lose an average of $600 each because of the spending cuts, and get back 
only a third of that amount in tax reductions. 

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  In order to have a fair balanced budget, every form of spending 
should be on the table. By the year 2002, the largest of all 
entitlement programs will be tax entitlements. It is not going to be 
the Census Bureau, it is not going to be the NEA, it will not be 
education, it is not going to be the environmental cleanup, it is going 
to be tax entitlements. Between now and the year 2002, the Federal 
Government will spend over $4 trillion in tax loopholes and tax 
preferences which go disproportionately to wealthy individuals and 
corporations. In 2002, these tax entitlements will represent a larger 
share of the budget than Social Security, Medicare and Medicaid or any 
of the other entitlement programs. So far, out of the $4 trillion of 
tax entitlements, the Republicans are willing to cut only $16 billion. 
Out of the $4.3 trillion, they are prepared to cut $16 billion.
  A recent article in the Wall Street Journal cited the increasing 
disparity of the tax burden between individuals and corporations. The 
journal cites Treasury Department figures that corporate taxes in 1993 
accounted for only 10 percent of the total Federal tax collections. In 
1960, that figure was 23 percent. The proportion of taxes paid by 
corporate America has decreased by more than half at the same time the 
corporate profits have soared and wages have remained stagnant.
  The Tax Reform Act of 1986, the most recent comprehensive reform of 
our Tax Code, was enacted to provide greater equity in the tax burden 
by eliminating corporate loopholes. The statistics compiled by the 
Office of Management and Budget suggest this has had limited effect. 
Mr. President, this chart is effectively summarizing what was in the 
Wall Street Journal article about a week ago about what has happened 
with tax fairness, and corporations versus families. Here we find where 
the American families, working families, individuals, and individual 
families have been with respect to tax revenues, and where the burden 
has fallen.
  What have we seen over the period of the last years? Constant 
reduction in terms of corporate participation. It is now just about a 
third of what it was back some 30 years ago. Basically, that has been 
because of the escalation of the various tax expenditures and tax 
loopholes. What do our Republican friends want to do in their budget? 
They want to provide greater kinds of benefits to the corporations and 
wealthiest individuals, and increase--increase--the taxes on the 
working families, on the neediest working families in this country.
  I wish when we listen to our good Republican friends that are talking 
about how the President wants to spend a little more on the Census 
Bureau and how he wants to do a little more on the environment, that we 
would realize that their arguments would have a lot more power if they 
explained why they want to have $245 billion in tax breaks, which is 
their latest offer, saying they will not support any kind of budget 
unless it has that $245 billion--again, it is the corporations who have 
been gradually paying less and less of their fair share of the load.
  We hear a lot about people being in the wagon and out of the wagon, 
paying their fair share of the load. What we have seen, Mr. President, 
is over the period of these years right up until now, the gradual 
reduction in the corporations' participation because of the whole range 
of different tax expenditures.
  Let me just describe briefly a few of those. Again, this is occurring 
because the Tax Code is still rife with loopholes through which this 
country's major corporations jump with ease. The General Accounting 
Office has reported that in 1991, 73 percent of foreign-based 
corporations doing business in the United States pay no Federal income 
taxes. More than 60 percent of U.S.-based companies paid no U.S. income 
taxes. Not only are the foreign corporations not paying any, what we 
have devised in the Tax Code are provisions which are encouraging these 
corporations to move jobs overseas taking jobs away from Americans. We 
give them tax benefits if they take the jobs away from hard-working 
Americans who are already paying their fair share, to move them 
overseas. We found that when the President in the last Congress closed 
down one of the principal loopholes, no sooner had it been closed down 
than under the Republican program it has opened up again.
  Companies still have a significant incentive to minimize the 
calculation of their U.S. income, and therefore their U.S. taxation. 
They shift income away from the United States and shift deductible 
expenses into the United States. In fact, these corporate tax loopholes 
encourage companies to move plants and jobs overseas to low-tax havens. 
Our Tax Code promotes the wage stagnation caused by the exodus of good 
manufacturing jobs.
  Surely, if elderly couples depending on Medicare and having an 
average income of less than $17,000 a year would be required by the 
Republican plan to pay an additional $2,500 in Medicare premiums to 
balanced the budget over the next 7 years, corporations can be asked to 
contribute their fair share.
  If 4 million children would lose their health care and 5 million 
senior citizens and disabled Americans would lose their Medicaid 
protection to balance the budget, corporations can be asked to bear 
their fair share. Surely, if education funding would be cut by 30 
percent and millions of college students would have the cost of their 
student loans increased to a point where they may no longer be able to 
afford college, corporations can be asked to bear their fair share.
  Here are several approaches to make this work. First, the Republican 
plan would provide a reduction of 17 percent in the Federal budget over 
the next 7 years, exclusive of defense spending and Social Security. 
Reducing the $4 trillion in tax subsidies by 17 percent would achieve 
savings of $680 billion.
  If we applied the 17-percent reduction to only one-quarter of the tax 
expenditures, we would save $170 billion--more than enough to provide 
the additional savings needed in the current impasse to balance the 
budget fairly in 7 years. Surely it makes sense to reduce corporate 
subsidies by a similar percentage as programs that benefit working 
Americans and the poor are being cut.
  As a second approach, a number of specific corporate loopholes that 
are contrary to sensible national policy could be eliminated entirely 
to achieve the needed savings. It would make sense under this approach 
to focus specifically on tax subsidies that have the direct or indirect 
affect of encouraging American businesses to move transactions and jobs 
overseas. It is particularly offensive, at a time when large numbers of 
American workers are losing their jobs and being dislocated by changes 
in the economy, that the Tax Code is subsidizing corporations to move 
transactions and jobs overseas.
  Here are examples of some of the most egregious corporate tax 
expenditures:
  Runaway plants--$8 billion over 7 years: The Tax Code now encourages 
U.S. firms to move abroad. A manufacturing plant that moves overseas 
can defer its taxes on profits until those profits are repatriated to 
the United States. As a result, much of these profits never come back 
to the United States. Unlike all other taxpayers, these multinational 
companies are not required to pay taxes at the time of the gain.
  Closing this egregious loophole would eliminate an $8 billion 
giveaway over 7 years. Yet, legislation proposed to address this 
specific issue was rejected by the Senate earlier this year on a party 
line vote.
  As a result, foreign subsidiaries can accrue big profits abroad, 
stash the money in foreign bank accounts, and not pay any U.S. taxes on 
them.
  In a related matter, the President and Congress took action in 1993 
to close an additional loophole that provides incentives to companies 
to move jobs overseas. The Republicans now want to reopen that 
loophole, and have done so in their budget plan.
  Over the course of the past 15 years, the United States lost 3 
million manufacturing jobs. Fifty percent of these jobs have been lost 
in the last 5 years alone. These jobs were being lost at the same time 
that U.S.-owned subsidiaries were locating plants in tax haven 
countries across the globe.
  Closing these loopholes is a win-win for the American worker and the 
American taxpayer. U.S. companies will no longer have the same 
incentive to move U.S. jobs overseas and at the same time we can reduce 
the Federal deficit.
  Transfer pricing--$35-$40 billion annually: Companies have a 
significant 

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incentive to minimize their U.S.-based income, and therefore their U.S. 
taxes. Therefore, they shift income away from the United States and 
shift tax-deductible expenses into the United States. Plain and simple, 
it's cooking the books, shifting costs from one part of the company to 
another for tax purposes, or transfer pricing.
  IBM, for example, was fortunate enough to accumulate $25 billion in 
U.S. sales in 1987. That same year, its 1987 annual report stated that 
one third of its worldwide profits were earned by its U.S. operations. 
Clearly, its U.S. operations appeared profitable and successful. Yet, 
its tax return reported almost no U.S. earnings.
  A recent study asserts that transfer pricing could cost as much as 
$35 to $40 billion annually. The Multi-State Tax Commission has stated 
that it is at least a $2 billion a year problem, and that only includes 
foreign-based companies doing business in the United States. And there 
are far more U.S.-based companies with foreign operations than foreign-
based companies with U.S. operations.
  And this is not the result of tax policy that is intended to spur 
U.S. investment. In contrast, it is revenue lost directly as a result 
of multinational companies fixing the books to minimize their U.S. tax 
liability.
  This is not a new problem with which we are dealing. To the contrary, 
we have been trying to close this loophole for almost 20 years. Back in 
1978, when we debated the United States-United Kingdom tax treaty, we 
spent a substantial amount of time on this issue. We knew then, as we 
know now, that it was a loophole that necessitated action. The only 
difference now is that it is a much bigger problem, more pervasive, and 
more costly to the Federal Treasury.
  States have responded to this problem by requiring companies to 
proportion their costs and profits according to employees, payroll, and 
other standards. We can do the same.
  And even more troubling is the fact that this is not a single 
loophole that exists by itself for multinational corporations. There 
are others, such as tax credits provided to U.S. companies for tax 
payments made to foreign countries by their subsidiaries, or tax 
deferrals for U.S. companies on income of foreign operations that are 
not repatriated to this country.
  Title passage--$16 billion over 7 years: Another tax loophole for 
multinational corporations is the so-called inventory property sales 
source rule. Large multinational exporting corporations are able to 
sell goods abroad and avoid U.S. taxes through some fancy footwork 
during the export process. This provision allows multinational 
corporations to shift sales to overseas operations, eliminating 
taxation in this country.
  This loophole was closed by both the House and the Senate in the 1986 
tax reform process, but was reopened in conference. Treasury has 
estimated that if we eliminated it altogether, as we tried to do in 
1986, we would generate as much as $16 billion.
  Let's look at an example. Company X is shipping out some products to 
a foreign country. Under normal circumstances, that shipment would pay 
taxes to the United States. But under a special rule, that company 
passes title to the products out on the high seas, thereby avoiding all 
Federal taxes. This is equivalent to a tax exemption that 
disproportionately benefits upper income individuals.
  Some people will say that we are taking steps that will hurt exports 
and the expansion of our markets that can create new jobs for the 
economy. But we are only closing an unnecessary loophole that is 
prevalent because companies are willing to pass title of property in 
the middle of the Atlantic and Pacific Oceans.
  Foreign sales corporations--$9.4 billion over 7 years: An additional 
tax break is provided to companies through paper transactions. It is 
called the foreign sales corporation loophole, and provides exporters 
with the opportunity to exempt a portion of their export income from 
U.S. taxation.
  A company does not have to increase its export activity, increase its 
payroll, or even increase its own production in the United States. It 
only has to set up a foreign sales corporation on paper. It can then 
exempt up to 30 percent of its export income from taxes. The Joint Tax 
Committee estimates that the closure of this loophole would raise $9.4 
billion in new revenue over the 7-year budget period.
  Capital gains tax reduction: Whether we agree or disagree about its 
merits, do any of us really believe that it should be retroactive to 
January 1, 1995?
  Is that fair? To give new tax breaks to wealthy individuals 
retroactively while we also cut important programs for our working 
families?
  Billionaires' loophole: We still haven't closed the so-called 
billionaires' loophole. On April 6, we voted 96-4 to close it up tight, 
and the Senate Finance Committee has closed it twice now. But every 
time it goes to conference, it gets opened up.
  This is a tax loophole that exists for billionaires who renounce 
their American citizenship to avoid millions and even billions of 
dollars in taxes on income, capital gains, gifts, and estates.
  The law would not prevent individuals from shifting both their assets 
and their citizenship to a foreign country. Rather, it would just make 
sure that those who have amassed great wealth through the U.S. economic 
system pay their fair share of taxes.
  Last year, approximately 850 individuals renounced their citizenship, 
but only a handful of those would be affected by this legislation. The 
tax loophole only applies to those with a minimum $600,000 in 
unrealized gains, which generally would necessitate a minimum $5 
million net worth. All those without that level of liability can 
renounce their citizenship without the IRS ever questioning their 
motives.
  This loophole allows an individual to enjoy all the benefits of the 
United States, including its stature as an economic engine for the 
world, grow rich because of it, and then expatriate without being taxed 
on the wealth generated in this country. This tax break costs the 
taxpayers $3.6 billion over 10 years.
  It is not even a slap on the wrist. It is barely enough to close the 
loophole that permits American billionaires to renounce their 
citizenship and take up their residency overseas in order to escape 
American taxes.
  Unbelievable. We passed the amendment here on the floor of the U.S. 
Senate by over 90 votes, saying: When you go to the conference on those 
budgets, pull that Benedict Arnold proposal out of that budget.
  Those doors were not even closed over there when out it came again, 
right out again. No wonder the President vetoed that particular budget. 
Who wants to be associated with saying to a superwealthy American, 
``Renounce your citizenship and escape all the taxes for the moneys you 
have earned in the United States''? That provision is still in there.
  The PRESIDING OFFICER. The time of the Senator has expired.
  The Senator from Mississippi.

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