[Congressional Record Volume 149, Number 147 (Monday, October 20, 2003)]
[Extensions of Remarks]
[Pages E2098-E2099]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   AMERICAN COMPETITION ENHANCEMENT ACT OF 2003 (THE ACE ACT OF 2003)

                            HON. MAC COLLINS

                               of georgia

                    in the house of representatives

                        Monday, October 20, 2003

  Mr. COLLINS. Mr. Speaker, today, I am proud to introduce legislation 
that will protect American jobs and will create new job opportunities 
for those Americans in search of employment.
  The American Competition Enhancement Act of 2003 would ultimately 
provide an across-the-board tax cut of 5 percent for all corporations. 
Specifically, the ACE Act will cut the corporate tax rate by 3 points 
in 2004, initially lowering the corporate rate to a tax level of 32 
percent. Three years later, the ACE Act would cut the tax rate by an 
additional 2 points, lowering the rate for corporations to 30 percent 
in 2007.
  Since 1996, our trading partners have realized that being competitive 
in the global marketplace requires cutting taxes of the businesses that 
employ their workers. Many countries, including Australia, Canada, 
France, Germany, Japan, Poland and Turkey, have cut their corporate tax 
rates drastically--some by 10 percent or more. In fact, the average top 
corporate tax rate for governments in the Organization for Economic 
Cooperation and Development (OECD) has dropped from a rate of 41 
percent in 1986 to 30.9 percent in 2003, while the U.S. corporate rate 
has remained unchanged at 35 percent over the same period. When state 
and local taxes are added on top of this rate, the U.S. corporate tax 
rate averages 40 percent--which is more than 9 percentage points higher 
than the OECD average.
  While other countries have learned that lower taxation enables them 
to compete for business, and ultimately jobs, the United States has 
failed to respond, and American workers have suffered. Many in this 
Congress have remained content to sit idly by as other nations have 
lowered corporate taxes. Instead of freeing American businesses and our 
workers from oppressive taxation and burdensome regulations, this 
Congress has continued to support efforts to make our tax code more 
ambiguous and difficult to navigate.
  Over the past 20 years, the Congress has passed tax law that has led 
to the creation of complicated and excessive rules--rules that have 
negatively impacted the ability of American companies to compete in the 
world market. These have been ``defensive'' responses to competition, 
not ``offensive'' responses to increasing worldwide competition. 
Throughout, the Twentieth Century, the United States competed 
aggressively in the world market, and as a result our competitors 
responded. To remain competitive, this Congress MUST act again, and we 
MUST begin by reforming our tax policy that has become a choke collar 
on our American workers, restricting them from being free to compete 
with other workers in the world market.
  As this Congress debates export subsidies and global competition, we 
will continue to hear much about the challenges faced by American 
manufacturers. Yet, the first and foremost challenge that American 
manufacturers, and all American employers, face is an increasingly 
restrictive and oppressive tax code. The ACE Act would address this 
fundamental issue and enable American workers in all sectors, including 
manufacturing, to once again compete in the world market. This bill 
would instill confidence in our manufacturing industry and would entice 
many other industries to operate here instead of locating overseas.
  As the greatest workers in the world, there is little doubt about the 
outcome, if only the Congress will free our workers to compete.
  Some will say that we cannot afford the ACE Act, but American workers 
cannot afford the alternative--continued taxation that restricts, 
limits and chokes their ability to compete. Some are saying that any 
tax legislation must be budget neutral; yet, over the last two years, 
the corporate income tax structure remains unchanged, and corporate 
revenue has only declined. In fact, Corporate Income Tax Revenue has 
decreased significantly--from 2000 to 2001 Corporate Income Tax 
Revenues fell from $207.3 billion to $151.1 billion, a decrease of 
$56.2 billion; in 2002, Corporate Income Tax Revenue dropped to $148 
billion--a decrease of $59.3 billion from the 2000 level. In 2 years, 
our corporate tax laws have resulted in lost jobs, lost dollars in 
American workers' pockets, and a combined loss in revenue of $115.5 
billion (See Table F-3 of the Congressional Budget Office--Budget and 
Economic Outlook: Fiscal Years 2004-2013).
  Over the past 3 years the United States has seen a loss of 2.7 
million manufacturing jobs--with an average of 60,000 job losses per 
month over the past 2 years. Some of these jobs have disappeared due to 
increased production efficiencies, but many more have been relocated 
overseas.
  History has shown that lower taxation leads employers to keep the 
employees they have, to invest in capital expenditures that create new 
jobs, and to increase their profits which, in turn, means economic 
growth, more jobs, more exports, more production, and, ultimately, more 
dollars flowing to the Federal Treasury. Let us learn from history and 
pass meaningful tax relief to stimulate economic growth and, in turn, 
increase the funds in workers' pockets; ultimately, this would mean 
more dollars for the Treasury of the United States.
  I urge my colleagues in this House to consider the actions of others 
around the world, to consider history's lessons, and, most importantly, 
to consider the effect of our tax code on workers in their own 
districts. I have considered this all and am determined that we must

[[Page E2099]]

free American workers from the choke collar of taxation. This Congress 
must act and provide much needed relief for all American corporations 
that employ our people.
  Mr. Speaker, I call on the House to consider American workers and 
consider the challenges they face. It is time that the House pass 
solid, meaningful tax legislation that supports the American worker.

            [From the Tax & Budget Bulletin, CATO Institute]

             The U.S. Corporate Tax and the Global Economy

     (By Chris Edwards, Director of Fiscal Policy, Cato Institute)

       The corporate income tax is at the center of numerous 
     policy debates today. First, the World Trade Organization has 
     ruled that the U.S. Foreign Sales Corporation/
     Extraterritorial Income Exclusion (FSC/ETI) tax break given 
     to exporters is illegal. The European Union has threatened 
     the United States with trade retaliation unless it repeals 
     FSC/ETI by the end of this year. Next, corporate tax 
     avoidance has been in the news in the wake of the Enron 
     scandal. Finally, there is growing concern that the corporate 
     income tax damages business competitiveness and reduces U.S. 
     economic growth.
       In response to the WTO ruling, bills have been introduced 
     to repeal FSC/ETI, including H.R. 2896 by Ways and Means 
     chairman Bill Thomas (R-Cal.) and H.R. 1769 by Phil Crane (R-
     Ill.) and Charles Rangel (D-N.Y.). The Thomas bill, and a 
     similar proposal by Senator Orrin Hatch (R-Utah), includes 
     many useful tax reforms in exchange for repeal of the $5 
     billion per year FSC/ETI provision. However, more fundamental 
     tax reforms are needed, including a large cut to the 
     corporate tax rate.


                  corporate tax reform is long overdue

       Global direct investment flows rose six-fold in the past 
     decade, and research shows that these flows are increasingly 
     sensitive to corporate taxes. To attract capital and build 
     the economy, the United States should have a neutral and low-
     rate corporate tax. Instead, the United States has perhaps 
     the most complex corporate tax and the second highest 
     corporate tax rate among major nations.
       The U.S. statutory corporate tax rate is 40 percent, which 
     includes the 35 percent federal rate and an average state 
     rate of 5 percent. By comparison, Figure 1 shows that the 
     average rate for the 30-nation Organization for Economic 
     Cooperation and Development is 30.9 percent, down sharply 
     from 37.6 percent in 1996.
       Aside from a high rate, the U.S. corporate tax has 
     uncompetitive rules for firms that compete in foreign 
     markets. The U.S. Treasury's assistant secretary for tax 
     policy, Pam Olson, recently testified that ``no other country 
     has rules for the immediate taxation of foreign-source income 
     that are comparable to the U.S. rules in terms of breadth and 
     complexity.'' The complexity of the U.S. rules on foreign 
     income are infamous--Dow Chemical has calculated that 78 
     percent of its 7,800-page U.S. tax return relates to the 
     rules on foreign income.
       Part of the problem is that Congress has viewed 
     corporations as cash cows, and has shown little concern that 
     high taxes reduce investment and drive capital and profits 
     abroad. One example of how the demand for more tax revenue 
     can backfire is the taxation of ``foreign base company 
     shipping income.'' It used to be that the foreign income 
     earned by cargo ships and other vessels owed by U.S. 
     subsidiaries was not taxed until repatriated to the United 
     States. However, Congress changed the rules in 1975 and 1986 
     to tax that income immediately as earned. But rather than 
     raising federal revenue, the changes reduced revenue as the 
     U.S.-owned shipping fleet shrunk and the tax base 
     disappeared. The U.S. share of the world's open-registry 
     shipping fleet fell from 25 percent in 1975 to less than 5 
     percent today. The Thomas and Hatch bills include a fix to 
     this counterproductive tax provision.


                  thomas bill includes modest REforms

       The corporate tax reform bill introduced by Bill Thomas 
     would reduce the double taxation of foreign income earned by 
     U.S. multinational corporations (MNCs) and simplify the rules 
     for foreign tax credits and subpart F income. Simplifying and 
     reducing taxes on MNCs would benefit the U.S. economy in a 
     number of ways. U.S. MNCs would be able to increase U.S.-
     based research and other headquarters activities if their 
     foreign operations were larger and more profitable. Also, 
     MNCs could better penetrate global markets with U.S. exports 
     if their foreign affiliates were more competitive. Indeed, 
     U.S. Department of Commerce data show that U.S. MNCs account 
     for two-thirds of all U.S. merchandise exports. By making 
     U.S. MNCs more competitive, the Thomas bill would boost U.S. 
     exports, employment, and incomes. The Thomas bill also 
     includes other useful but limited reforms, including faster 
     depreciation for some equipment investment, liberalizing the 
     subchapter S rules for small corporations, and changes to the 
     corporate alternative minimum tax.
       The Crane-Rangel bill provides a targeted tax break for 
     manufacturing. A new deduction would reduce the tax rate for 
     domestic manufacturing by 3.5 percentage points, but would 
     not cut taxes for other types of businesses. This is poor 
     policy compared to a broad-based tax cut because it would 
     increase tax complexity and divide the business sector even 
     further into separate lobbying camps, each wanting narrow 
     breaks rather than overall reforms.


                    more fundamental reforms needed

       Rather than provide narrow breaks, Congress should cut the 
     35 percent corporate tax rate to 20 percent so that the 
     United States becomes a tax reform leader, not a laggard. In 
     order not to increase the deficit, a rate cut could be paired 
     with cuts to federal spending on business subsidies, which 
     currently total about $90 billion per year. Such a reform 
     package would increase investment and employment incentives 
     for all firms and reduce government favoritism and business 
     distortions.
       Beyond a rate cut, Congress should consider full repeal of 
     the corporate tax or replacement with a cash-flow tax. A cash 
     flow tax would increase domestic investment and make U.S. 
     firms more competitive in global markets because firms would 
     not be taxed on their foreign business income. A cash-flow 
     tax would also reduce wasteful tax sheltering. Indeed, most 
     of Enron's tax shelters would not have been possible under a 
     cash-flow tax.
       Congress should aim to give this country the best possible 
     corporate tax environment, not one of the worst. A good first 
     step would be to simplify and reduce taxes for U.S. MNCs, and 
     then follow up with a reduction of the corporate tax rate to 
     20 percent.

                          ____________________