[Congressional Record Volume 147, Number 43 (Wednesday, March 28, 2001)]
[Extensions of Remarks]
[Pages E468-E469]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




       INTRODUCTION OF ``THE INTERNATIONAL COMPETITIVENESS ACT''

                                 ______
                                 

                          HON. PHILIP M. CRANE

                              of illinois

                    in the house of representatives

                       Wednesday, March 28, 2001

  Mr. CRANE. Mr. Speaker, today I am introducing the International 
Competitiveness Act, along with my colleagues Congresswoman Jennifer 
Dunn, Congressman Adam Smith, and Congressman Richard Hastings. This 
legislation would eliminate an irrational provision in our tax code 
that reduces the amount of foreign capital flowing into the United 
States, and redirects some of the capital that flows in away from U.S.-
based mutual funds toward foreign-based mutual funds.
  Under present law, most kinds of interest income and short-term 
capital gains received directly by a foreign investor or received 
through a foreign mutual fund are not subject to the 30 percent 
withholding tax on investment income. However, interest income and 
short-term capital gains earned by a U.S. mutual fund on its holdings 
are recharacterized as dividend income when distributed to a foreign 
investor and is therefore subject to the withholding tax.
  Mutual funds are very popular tools for investors. Many foreign 
investors, like U.S. investors, prefer to rely on professional managers 
of mutual funds in choosing an appropriate portfolio, rather than 
having to do the research themselves. However, a foreign investor 
looking to invest in the U.S. currently

[[Page E469]]

has two options. The first option is to pay a steep withholding tax on 
all income and short-term capital gains earnings from a U.S. mutual 
fund, or invest through a foreign mutual fund. Few foreign investors 
are willing to bear a 30 percent withholding tax, and so they either 
invest through the foreign mutual fund or forego investing in the 
United States. Either way, the real loser is the United States.
  As Chairman of the Ways and Means Subcommittee on International 
Trade, I also look at this issue from a trade policy perspective lens. 
And this lends show me that we have in this tax provision an artificial 
barrier to the free flow of trade in the form of financial services and 
to the free flow of capital. In this respect the current income tax 
clearly gives foreign mutual funds as competitive advantage with no 
compensatory advantage gained by any American interest whatsoever.
  Mr. Speaker, I believe this legislation makes good sense as tax 
policy, trade policy, and economic policy, and I urge my colleagues to 
lend it their support.

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