[Congressional Record Volume 155, Number 71 (Monday, May 11, 2009)]
[Senate]
[Pages S5307-S5308]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                        TAX BURDEN AND BAILOUTS

  Mr. KYL. Mr. President, first, I would like to ask unanimous consent 
that two op-eds be printed in the Record. Let me identify them both.
  The first is a piece in the Washington Post of today by Robert 
Samuelson, titled ``Tax Dodge Myths.'' I think he is one of the best 
economists and writers in this country. He always has something very 
useful to say, and his column today made the point that it would be 
folly for the United States to add a tax burden on American 
corporations such as Coca-Cola, IBM, Microsoft, Caterpillar--companies 
like that--that are multinational in the sense that they do business 
here but also do business in other countries.
  It simply makes no sense to add a tax burden onto them as if they are 
doing something unpatriotic by selling our products in other countries 
as well as in the United States.
  The other is a piece called ``The Chrysler Power Grab.'' It was 
carried in the Arizona Republic on May 6 of this year and was written 
by the finest columnist in Arizona. His name is Bob Robb.
  In this column, he notes the irony of the fact that the United States 
has been bailing out two American companies--Chrysler and General 
Motors--for the purpose of saving American jobs, when in point of fact 
it looks as though a lot of the results of this action are going to be 
to transfer jobs to other countries and ironically to compete with 
companies that may be owned abroad, such as Toyota, but have a lot of 
American workers. He talks about the fact that Fiat, an Italian 
company, is hard to distinguish from Toyota, a Japanese company, but we 
are apparently saving the jobs for Fiat but not those for Toyota.
  In any event, I think these are two interesting columns, and I ask 
unanimous consent that they be printed in the Record.
  There being no objection, the material was ordered to be printed in 
the Record, as follows:

                [From the Washington Post, May 11, 2009]

                            Tax Dodge Myths

                        (By Robert J. Samuelson)

       The U.S. tax code is ``full of corporate loopholes that 
     makes it perfectly legal for companies to avoid paying their 
     fair share.''--President Obama, May 4.
       Like it or not, ours is a world of multinational companies. 
     Almost all of America's brand-name firms (Coca-Cola, IBM, 
     Microsoft, Caterpillar) are multinationals, and the process 
     works both ways. In 2006, the U.S. operations of foreign 
     firms employed 5.3 million workers. Fiat's looming takeover 
     of Chrysler reminds us again that much business is 
     transnational.
       For most people, the multinational company is a troubling 
     concept. Loyalty matters. We like to think that ``our 
     companies'' serve the broad national interest rather than 
     just scouring the world for the cheapest labor, the laxest 
     regulations and the lowest taxes. And the tax issue is 
     especially vexing: How should multinationals be taxed on the 
     profits they make outside their home countries?
       Listen to President Obama, and the status quo seems a 
     cesspool. Pervasive ``loopholes'' engineered by ``well-
     connected lobbyists'' allow U.S. multinationals to skirt 
     American taxes and outsource jobs to low-tax countries. So 
     the president proposes plugging loopholes. Some jobs will 
     return to the United States, he said, and U.S. tax coffers 
     will grow by $210 billion over the next decade.
       Sounds great--and that's how the story played. ``Obama 
     Targets Overseas Tax Dodge,'' headlined The Post. But the 
     reality is murkier; the president's accusatory rhetoric 
     perpetuates many myths.
       Myth: Aided by those overpaid lobbyists, American 
     multinationals are taxed lightly--less so than their foreign 
     counterparts.
       Reality: Just the opposite. Most countries don't tax the 
     foreign profits of their multinational firms at all. Take a 
     Swiss multinational with operations in South Korea. It pays a 
     27.5 percent Korean corporate tax on its profits and can 
     bring home the rest tax-free. By contrast, a U.S. firm in 
     Korea pays the Korean tax and, if it returns the profits to 
     the United States, faces the 35 percent U.S. corporate tax 
     rate. American companies can defer the U.S. tax by keeping 
     the profits abroad (naturally, many do), and when 
     repatriated, companies get a credit for foreign taxes paid. 
     In this case, they'd pay the difference between the Korean 
     rate (27.5 percent) and the U.S. rate (35 percent).
       Myth: When US. multinationals invest abroad, they destroy 
     American jobs.
       Reality: Not so. Sure, many U.S. firms have shut American 
     factories and opened plants elsewhere. But most overseas 
     investments by U.S. multinationals serve local markets. Only 
     10 percent of their foreign output is exported back to the 
     United States, says Harvard economist Fritz Foley. When Wal-
     Mart opens a store in China, it doesn't close one in 
     California. On balance, all the extra foreign sales create 
     U.S. jobs for management, research and development (almost 90 
     percent of American multinationals' R&D occurs in the United 
     States), and the export of components. A study by Foley and 
     economists Mihir Desai of Harvard and James Hines of the 
     University of Michigan estimates that for every 10 percent 
     increase in U.S. multinationals' overseas payrolls, their 
     American payrolls increase almost 4 percent.

[[Page S5308]]

       Myth: Plugging overseas corporate tax loopholes will 
     dramatically improve the budget outlook as multinationals pay 
     their ``fair'' share.
       Reality: Dream on. The estimated $210 billion revenue gain 
     over 10 years--money already included in Obama's budget--
     represents only six-tenths of 1 percent of the decade's tax 
     revenue of $32 trillion, as projected by the Congressional 
     Budget Office. Worse, the CBO reckons that Obama's endless 
     deficits over the decade will total a gut-wrenching $9.3 
     trillion.
       Whether Obama's proposals would create any jobs in the 
     United States is an open question. In highly technical ways, 
     Obama would increase the taxes on the foreign profits of U.S. 
     multinationals by limiting the use of today's deferral and 
     foreign tax credit. Taxing overseas investment more heavily, 
     the theory goes, would favor investment in the United States.
       But many experts believe his proposals would actually 
     destroy U.S. jobs. Being more heavily taxed, American 
     multinational firms would have more trouble competing with 
     European and Asian rivals. Some U.S. foreign operations might 
     be sold to tax-advantaged foreign firms. Either way, 
     supporting operations in the United States would suffer. 
     ``You lose some of those good management and professional 
     jobs in places like Chicago and New York,'' says Gary 
     Hufbauer of the Peterson Institute.
       Including state taxes, America's top corporate tax rate 
     exceeds 39 percent; among wealthy nations, only Japan's is 
     higher (slightly). However, the effective U.S. tax rate is 
     reduced by preferences--mostly domestic, not foreign--that 
     also make the system complex and expensive. As Hufbauer 
     suggests, Obama would have been better advised to cut the top 
     rate and pay for it by simultaneously ending many 
     preferences. That would lower compliance costs and involve 
     fewer distortions. But this sort of proposal would have been 
     harder to sell. Obama sacrificed substance for grandstanding.
                                  ____


                      [From the Arizona Republic]

                        The Chrysler Power Grab

       The proposed end games for General Motors and particularly 
     Chrysler illustrate why government shouldn't have gotten 
     involved in the first place.
       It's worthwhile to begin with the broader picture. 
     Americans used to buy about 17 million new cars and trucks a 
     year. Now, we're buying less than 10 million. That, of 
     course, puts considerable stress on manufacturers with weaker 
     products or financial structures.
       How many new cars Americans will want to purchase in the 
     future is unknown. But there can be a high degree of 
     confidence in this: however many it is, someone will sell 
     them to us.
       Moreover, they are likely to be produced in the United 
     States. A majority of cars sold by foreign manufacturers in 
     the U.S. are actually built here.
       So, why should the federal government care who it is that 
     sells us our cars? There are two rationales offered. First, 
     to preserve an ``American'' auto industry. Second, to 
     preserve ``American'' jobs.
       The proposed Chrysler restructuring gives the lie to both 
     rationales.
       Under the Obama administration's proposal, Chrysler would, 
     in essence, be given to Fiat, an Italian company, to operate.
       So, how is an Italian car manufacturer operating in 
     Michigan any more ``American'' than a Japanese manufacturer 
     operating in Kentucky?
       And why should the federal government give a market 
     preference--through taxpayer financing and warrantee 
     guarantees to Italian cars produced by American workers in 
     Michigan over Japanese cars produced by American workers in 
     Kentucky?
       The Obama administration's proposed restructuring is more 
     than just unjustified, however. It dangerously undermines the 
     rule of law, as explicated so beneficially by Friedrich Hayek 
     in his classic, ``The Road to Serfdom.''
       The essence of the rule of law, according to Hayek, is that 
     what the government will do is known to all economic actors 
     in advance. That government will not act arbitrarily in 
     specific circumstances to favor some economic actors over 
     others.
       Chrysler has $6.9 billion in secured debt. Under the law, 
     secured lenders have the first claim on the assets of the 
     debtor in the event of non-payment.
       The Obama administration is attempting to muscle past this 
     law. Under its proposal, the health care trust of the auto 
     workers' union, an unsecured creditor, would forgive 57 
     percent of what Chrysler owes it, and receive 55 percent of 
     the company's equity in exchange. The federal government 
     would forgive about a third of what it would loan Chrysler 
     and receive 8 percent of the company's equity. Fiat would pay 
     nothing for its 20 percent initial ownership.
       The secured creditors, with the first claim on Chrysler's 
     assets, were asked to forgive 70 percent of what they are 
     owed and receive nothing in equity. When they refused and 
     forced the company into bankruptcy, they were excoriated by 
     Obama--a shameful act by a president who pledged to uphold 
     the law, not make it up as he went along.
       The purposed GM restructuring is equally lopsided. The 
     union trust would forgive half of what it is owed and receive 
     39 percent of the company. The government would forgive half 
     of what it is owed and receive 50 percent of the company. The 
     other private lenders, in this case unsecured, would forgive 
     100 percent of what they are owed and receive just 10 percent 
     of the company.
       In his recent press conference, Obama said he had no 
     interest in owning or operating car companies. Until this 
     point, I was willing to accept Obama at his word, while 
     fundamentally disagreeing with his economic policies.
       Given his actions, however, it's hard to credit his 
     disclaimer in this instance.
       These proposed restructurings are power grabs, pure and 
     simple. The positions of lenders are eviscerated to give 
     control to the union trust and the government. The emergent 
     companies are given market preference through taxpayer 
     financing and government warrantee guarantees. All to serve 
     no true national purpose.

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