[Congressional Record Volume 148, Number 77 (Wednesday, June 12, 2002)]
[Extensions of Remarks]
[Pages E1021-E1022]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                             BAD TAX POLICY

                                 ______
                                 

                             HON. RON PAUL

                                of texas

                    in the house of representatives

                         Tuesday, June 11, 2002

  Mr. PAUL. Mr. Speaker, I wish to call my colleagues' attention to the 
following article entitled ``Bad Tax Policy: You Can Run . . .'' by 
Daniel Mitchell, McKenna Senior Fellow at the Heritage Foundation. Mr. 
Mitchell discusses the practice of companies reincorporating in foreign 
jurisdictions to reduce their tax liability. As Mr. Mitchell points 
out, reincorporation benefits shareholders and American workers. This 
is because reincorporation In a low-tax foreign jurisdiction makes 
companies more competitive, thus enabling the companies to create new 
and better jobs for working Americans. Furthermore, reincorporation 
helps protect American companies from corporate takeovers by foreign 
investors. America's anti-competitive tax system is a major reason why 
several US companies have been taken over by foreign business 
interests.
  In the vast majority of cases, when a company moves its corporate 
headquarters to a foreign jurisdiction, it maintains its physical 
operations in America. In fact, Mr. Speaker, Stanley Company, whose 
recently-announced decision to incorporate in Bermuda has caused much 
handwringing over reincorporation, will not be laying off a single 
American worker as a consequence of their action!
  Though reincorporation benefits American investors and workers, some 
of my colleagues have objected to reincorporation because this action 
deprives the government of revenue. Some have even gone so far as to 
question the patriotism of companies that reincorporate. However, there 
is nothing unpatriotic about trying to minimize one's tax burden to 
enhance economic competitiveness. In fact, it could be argued that 
since reincorporation helps companies create new jobs and expand the 
American economy, those who reincorporate are behaving patriotically.
  One also could argue that it is those who oppose reincorporation who 
do not grasp the essence of the American system. After all, two of the 
main principles underlying the Constitution and the Declaration of 
Independence are limited government and respect for private property. 
In contrast, opponents of reincorporation implicitly assume that the 
government owns all of a nation's assets; therefore taxpayers never 
should take any actions to deny government what the politicians have 
determined to be their ``fair share.'' Mr. Speaker, this philosophy has 
more in common with medieval feudalism than with the constitutional 
republic created by the drafters of the Constitution.
  In conclusion, Mr. Speaker, I once again urge my colleagues to read 
Mr. Mitchell's article, which forcefully makes the case that taxing 
offshore income is economically destructive. Such taxation also is 
Inconsistent with the respect for individual liberty and private 
property rights which forms the foundation of America's constitutional 
republic, as well as a threat to the sovereign right of nations to 
determine the tax treatment of income earned inside national borders. I 
hope my colleagues will reject efforts to subject companies that 
reincorporate overseas to burdensome new taxes and regulations. 
Expanding Federal power in order to prevent companies from 
reincorporating will only kill American jobs and further weaken 
America's economy.

                [From the Washington Times, May 8, 2002]

                   Bad Tax Policy: You Can Run . . .

                          (By Daniel Mitchell)

       The worst Supreme Court decision of all time? One of the 
     leading candidates has to be the infamous 1857 Dred Scott 
     decision, in which the Supreme Court ruled that slaves did 
     not gain freedom by escaping to nonslave states.
       Instead, they were considered property and had to be 
     returned to their ``owners.''
       Some U.S. companies soon may be treated in a similar 
     manner, thanks to legislation being touted by Sens. Max 
     Baucus, Montana Democrat, and Charles Grassley, Iowa 
     Republican.
       It all starts with the Internal Revenue Code, which forces 
     U.S.-based companies to pay an extra layer of tax on income 
     earned in other countries.
       In an effort to protect the interests of workers, 
     shareholders and consumers, some of these companies are 
     escaping bad U.S. tax law by rechartering in Bermuda.
       This is a win-win situation for America. We get to keep 
     factories and headquarters in America, and our companies 
     remain on a level playing field with businesses based in 
     Europe and elsewhere.
       Not so fast, Sens. Baucus and Grassley are saying. They 
     want to stop ``corporate expatriations,'' even though they 
     keep American jobs in America and help U.S. companies compete 
     with their counterparts in Europe and Asia.
       Their legislation would forbid U.S. companies from re-
     chartering in countries with better tax laws.
       The politicians who support this are acting as if these 
     companies belonged to the government. Yet when House Minority 
     Leader Richard Gephardt, Missouri Democrat, for instance, 
     accuses them of being ``unpatriotic,'' he never explains 
     what's so patriotic

[[Page E1022]]

     about higher taxes and noncompetitive tax policy.
       Republicans are doing their share of business-bashing, too. 
     Mr. Grassley claims that corporate expatriations are 
     ``immoral,'' as if companies would be moral if they instead 
     kept their U.S. charters and fired some of their workers.
       If politicians are upset that some companies want to 
     recharter, they should blame themselves for trying to tax 
     ``worldwide'' income. An American firm competing against a 
     Dutch firm for a contract in Ireland, for instance, must pay 
     a 35 percent tax on its income--and the lion's share goes to 
     the IRS.
       The Dutch firm, by contrast, pays only the 10 percent Irish 
     tax on its Irish-source income because the Netherlands 
     doesn't tax income earned outside its borders.
       Before giving the IRS more power, politicians should 
     consider the following:
       Expatriation helps control government waste. High-tax 
     California can't stop companies from moving to low-tax 
     Nevada. Knowing this helps deter the big-spenders in the 
     state capitol from wasting even more money. The politicians 
     in Massachusetts must exercise some restraint because they 
     know local businesses can flee to low-tax New Hampshire. 
     Nations also should be subject to market discipline. This is 
     why Washington politicians shouldn't stop companies from 
     escaping bad U.S. tax law.
       Expatriation protects American jobs. Rechartering in 
     another jurisdiction doesn't mean factories will go overseas. 
     Nor does it require a company to move its headquarters. It 
     simply means a company is chartered under the laws of a 
     different jurisdiction, much as many American companies are 
     chartered in Delaware, but operate factories and have their 
     home offices in other states. In the case of expatriations, 
     the newly formed foreign company still maintains its U.S. 
     operations, but now won't have to fire workers since it can 
     compete more effectively with overseas businesses.
       Expatriation is not tax evasion. All corporations, 
     regardless of where they're based, pay tax to the IRS on all 
     profits they earn in the United States. This is true of U.S.-
     based companies, and it's true of all foreign-based 
     companies--including those that expatriate. All that chances 
     is that expatriating companies no longer have to pay taxes on 
     income earned outside America's borders. Since worldwide 
     taxation is misguided tax policy, this is a positive result. 
     Indeed, every tax reform plan, including the flat tax, is 
     based on this common-sense principle of ``territorial'' 
     taxation.
       Now is hardly the time, with the economy in the midst of 
     recovery, for Washington politicians to make U.S. companies 
     less competitive. Nor is it the time to give the IRS the 
     power to prohibit businesses from rechartering in 
     jurisdictions with more sensible tax laws. Instead of 
     treating companies as if they're federal property, Sens. 
     Grassley and Baucus should be fixing the problems in the tax 
     code.

     

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