[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refuses to reform our outdated and antiquated Tax Code.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the need to reform our broken, outdated tax code.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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