[Congressional Record Volume 161, Number 126 (Wednesday, August 5, 2015)]
[Senate]
[Pages S6350-S6352]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




   CYBERSECURITY INFORMATION SHARING ACT OF 2015--MOTION TO PROCEED--
                               Continued


                            Tax Code Reform

  Mr. PORTMAN. Mr. President, if I could, I want to report on something 
that happened this week. I see that the chair of the Finance Committee, 
Senator Hatch, is here, and he is aware of this. This week we had a 
bipartisan hearing of the Permanent Subcommittee on Investigations on 
an issue that is also urgent. It is one that is imminent because right 
now many U.S. companies are leaving our shores. This means that jobs 
and investments are leaving America and going to other countries. It is 
something all of us should be concerned about because it is rapidly 
accelerating. It is because of one simple reason: Washington, DC, 
refuses to reform our outdated and antiquated Tax Code. It is 
Washington's fault. Unfortunately, the brunt of it is being borne by 
workers across our country.
  I would like to put into the Record my statement with regard to this 
hearing. It was a hearing where we were able to hear directly from 
companies about the impact of the Tax Code. We were able to bring in 
companies that have left the United States, requiring them to determine 
why they left. Unfortunately, it was eye-opening to the point that it 
requires us to deal with our broken Tax Code if we are going to retain 
jobs in this country, keep investment in this country, and be able to 
attract more jobs and investment to deal with our historically weak 
recovery in which we currently find ourselves.
  Mr. President, I wish to address an issue that is critical to 
unleashing job creation and boosting wages in this country--and that is 
the need to reform our broken, outdated tax code.
  This Congress, I took on a new role as chairman of the Senate's main 
investigative panel, the Permanent Subcommittee on Investigations, PSI, 
where I serve alongside my colleague Senator Claire McCaskill, the 
subcommittee's ranking member. Last week, PSI held a hearing 
specifically concerning how the U.S. tax code affects the market for 
corporate control. It is a topic that involves the jargon of corporate 
finance, but the impact is measured in U.S. jobs and wages. We see 
headlines every week about the loss of American business headquarters--
more often than not, to a country with a more competitive corporate tax 
rate, it is not hard to find one, and territorial system of taxation.
  Our tax code makes it hard to be an American company, and it puts 
U.S. workers at a disadvantage. At a 39 percent combined State and 
Federal rate, the United States has the highest corporate rate in the 
industrialized world. To add insult to injury our government taxes 
American businesses for the privilege of reinvesting their overseas 
profits here at home.
  Economists tell us that the burden of corporate taxes falls 
principally on workers--in the former of lower wages and fewer job 
opportunities. I am afraid this has helped create a middle-class 
squeeze that has made it harder for working families to make ends meet. 
Yet as almost all of our competitors have cut their corporate rates and 
eliminated repatriation taxes, America has failed to reform its 
outdated, complex tax code.
  As a result, American businesses are headed for the exits, at a loss 
of thousands of jobs. The unfortunate reality is that U.S. businesses 
are often much more valuable in the hands of foreign acquirers who can 
reduce their tax bills. I believe that is one reason why the value of 
foreign takeovers of U.S. companies doubled last year to $275 billion, 
and are on track to surpass $400 billion this year according to 
Dealogic, far outpacing the increase in overall global mergers and 
acquisitions.
  We should be very clear that foreign investment in the United States 
is essential to economic growth--we need more of it. But a tax code 
that distorts

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ownership decisions by handicapping U.S. business is not good for our 
economy--and that is what we have today. What is happening is that the 
current tax system increasingly drives U.S. businesses into the hands 
of those best able to reduce their tax liabilities, not necessarily 
those best equipped to create jobs and increase wages here at home. 
That is bad for American workers and bad for our long-term 
competitiveness as a country.
  To better understand the trend and inform legislative debate on tax 
reform, PSI decided to take a hard look at this issue. Over the past 
couple months, the subcommittee reviewed more than a dozen recent major 
foreign acquisitions of U.S. companies and mergers in which U.S. firms 
relocated overseas. This was a bipartisan project every step of the way 
with Senator McCaskill, and I am very grateful for that.
  Last week's hearing was the culmination of that work. And we heard 
directly from both U.S. companies that have felt the tax-driven 
pressures to move offshore and from foreign corporations whose tax 
advantages have turbocharged their growth by acquisition.
  Among the U.S. business leaders we heard from was Jim Koch, the 
founder and chairman of Boston Beer Company, maker of Sam Adams. At a 
U.S. market share between 1 percent to 2 percent each, Sam Adams and 
Pennsylvania-based Yuengling are actually the first and second largest 
U.S.-based brewers left. All of the great American beer companies--
Miller, Coors, and Anheuser-Busch--are now foreign-owned. And Mr. Koch 
testified that if we fail to reform our tax code, his company could be 
next.
  He explained that he regularly gets offers from investment bankers to 
facilitate a sale, at double-digit premiums, to a foreign acquirer who 
can dramatically reduce his tax bill from the 39 percent rate his 
company now pays. Mr. Koch said he can decline those attractive offers 
because he owns a majority of his company's voting shares. But when he 
is gone, he believes that company will be driven by financial pressure 
to sell.
  We also heard from the longtime CEO of the pharmaceutical company 
Allergan, David Pyott. Allergan was purchased by the Irish acquirer 
Actavis last year for $70 billion after a year-long takeover pursuit by 
Canadian business, Valeant Pharmaceuticals. Mr. Pyott estimated that 
foreign acquirers pursuing Allergan had about a $9 billion valuation 
advantage over what would have been possible for an American company, 
``simply because they could reduce Allergan's tax bill and gain access 
to its more than $2.5 billion in locked-out overseas earnings.'' Mr. 
Pyott testified that Allergan would be an independent American company 
today if it weren't for our tax code. Instead, Allergan is now 
headquartered in Ireland and Mr. Pyott projects that the new ownership 
will cut about 1,500 jobs, mostly in California.
  To better understand the tax-driven advantages enjoyed by foreign 
acquirers, PSI took a look at Quebec-based Valeant Pharmaceuticals. 
Over the past 4 years, Valeant has managed to acquire more than a dozen 
U.S. companies worth more than $30 billion. The subcommittee reviewed 
key documents to understand how tax advantages affected Valeant's three 
largest acquisitions to date, including the 2013 sale of New York-based 
eye care firm Bausch & Lomb and the 2015 sale of the North Carolina-
based drug maker Salix.

  We learned that, in those two transactions alone, Valeant determined 
that it could shave more than $3 billion off the target companies' tax 
bills by integrating them into its Canada-based corporate group. Those 
tax savings meant that Valeant's investments in its American targets 
would have higher returns and pay for themselves more quickly--two key 
drivers of the deals. The three recent Valeant acquisitions we studied 
resulted in a loss of about 2,300 U.S. jobs, plus a loss of about $16 
million per year of contract manufacturing that was moved from the U.S. 
to Canada and the UK.
  Beyond inbound acquisitions, America is also losing corporate 
headquarters through mergers in which U.S. businesses relocate 
overseas. The latest news is the U.S. agricultural business Monsanto's 
proposed $45 billion merger with its European counterpart Syngenta; a 
key part of that proposed deal is a new global corporate headquarters--
not in the U.S., but in London.
  To better understand this trend, the subcommittee examined the 2014 
merger of Burger King with the Canadian coffee-and-donut chain Tim 
Hortons--an $11.4 billion tie-up that sent Burger King's corporate 
headquarters north of the border. Our review showed that Burger King 
had strong business reasons to team up with Tim Hortons. But the record 
shows that when deciding where to locate the new headquarters of the 
combined company, tax considerations flatly ruled out the U.S. And it 
wasn't about the domestic tax rates--it was about international 
taxation.
  At the time, Burger King estimated that pulling Tim Hortons into the 
worldwide U.S. tax net, rather than relocating to Canada, would destroy 
up to $5.5 billion in value over just 5 years--$5.5 billion in an $11 
billion deal. Think about that. The company concluded it was necessary 
to put the headquarters in a country that would allow it to reinvest 
overseas earnings back in the U.S. and Canada without an additional tax 
hit. They ultimately chose Tim Hortons' home base of Canada because 
their territorial system of taxation allowed them to do just that.
  If there is a villain in these stories, it is the U.S. tax code. And 
if there is a failure, it is Washington's. Our job is to give our 
workers the best shot at competing in the global marketplace and yet we 
haven't reformed the tax code in decades while other countries have.
  That fact is that if Washington fails to reform our tax code, foreign 
acquirers will do it for us--one American company at a time. And rather 
than more jobs and higher wages, we will continue to see a loss of 
U.S.-headquartered businesses and jobs.
  With the deck stacked against American companies, I believe the 
solution is clear. We need a full overhaul of our current tax code. Cut 
both the individual and corporate rates to 25 percent, pay for the cuts 
by eliminating loopholes, and move to a competitive international 
system. Unfortunately, in our current political environment, that is 
simply not possible to do immediately. However, I do believe that we 
can take a positive first step towards reform this fall.
  A big part of that first step is included in a bipartisan framework 
for international tax reform that Senator Schumer and I released last 
month. That includes 1) a move to an international tax system that 
doesn't provide disincentives for companies to bring their money home 
from overseas to invest in growing their business and hiring more 
workers; 2) a patent box to keep highly mobile intellectual property 
and the high-paying jobs that go with developing that property in the 
U.S.; and 3) sensible base erosion protections that discourage 
companies from doing business in tax haven jurisdictions.
  I believe it should also include a tax extenders package that makes a 
lot of our current tax extenders permanent. I think that we can all 
agree that temporary tax policy is bad tax policy--and whether it is 
giving families certainty that there is going to be a mortgage 
insurance premium deduction, small businesses certainty that there is 
going to be expanded section 179 expensing, or innovative companies 
assurances that there is going to be an R&D credit, I believe that 
making these policies permanent would provide a big boost to our 
economy.
  In fact, yesterday, the Joint Committee on Taxation found that the 
short-term extenders package passed by the Senate Finance Committee 
last month would create $10.4 billion in dynamic tax revenue. Imagine 
the growth if those were made permanent?
  If we don't start to take steps to reform our code now, I am worried 
that we are going to turn around in a couple of years and say, ``what 
happened? Where did our jobs go? What happened to the American tax 
base?'' If we do get to that place, we will have no one to blame but 
ourselves.
  I thank the Chair for his indulgence this evening.
  I yield back my time.
  The PRESIDING OFFICER. The majority leader.

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