[Congressional Record Volume 161, Number 163 (Tuesday, November 3, 2015)]
[Senate]
[Pages S7728-S7731]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




                            TAX CODE REFORM

  Mr. PORTMAN. Mr. President, I rise this evening to talk about an 
issue

[[Page S7729]]

that is critical to keeping jobs here in America and keeping investment 
in this country and not driving it overseas.
  We had another reminder just last week of just how broken our Tax 
Code is when a huge company, Pfizer, a pharmaceutical company, decided 
it could no longer compete as a U.S. corporation. Instead it is seeking 
a merger with an Irish-based drugmaker called Allergan. They want to 
move their corporate headquarters to Ireland. It is another in a long 
line of companies that have made this decision because our Tax Code is 
broken.
  Unfortunately, these kinds of transactions are called inversions, 
where a U.S. company buys a smaller company overseas and merges with 
them to become a foreign company. That is just the tip of the iceberg. 
It is actually bigger than these inversions. It also has to do with 
foreign companies buying U.S. companies because they can do so because 
they have a higher aftertax profit and pay a premium. These kinds of 
transactions are causing our jobs and investments to go overseas.
  Yesterday we had another indication of that. It was announced that 
the Irish drug company Shire is going to buy the Massachusetts-based 
biotech company Dyax for $6.5 billion. By the way, this isn't the first 
acquisition Shire has made this year. In January they acquired a New 
Jersey-based company NPS Pharmaceuticals, and in August they bought a 
privately held company called Foresight Biotherapeutics.
  A foreign company coming in and buying U.S. companies and moving the 
headquarters overseas is an example of why what the Obama 
administration is doing to counter this is not working, because their 
solution to this is not to reform the Tax Code but rather to change the 
way the tax laws are interpreted and put out regulations they called a 
tax notice that tries to block these so-called inversions. This very 
company we are talking about, Shire, was the subject of an inversion. 
It is true that AbbVie, a company in Illinois, was going to merge with 
them and do one of these inversions. They chose not to because of the 
administration's new tax notice--these new regulations. What happened 
instead, Shire said: Fine, we will not merge with this U.S. company 
through an inversion. We will just buy U.S. companies--and they bought 
three this year. So this is only going to be solved if we actually 
reform the Tax Code.
  Interestingly, we have also seen this with another pharmaceutical 
company. It is called Salex. Salex wanted to do a merger--one of these 
inversions--and they were blocked from doing it by the regulations, so 
then they decided to become a target for a foreign takeover. Sure 
enough, a Canadian company, Valeant, which had already moved from the 
United States to Canada in a merger, in an inversion, came to the 
United States and bought, in this case, Salex, which is a North 
Carolina company. This is happening just about every week we are 
hearing about another company that is leaving our shores because of our 
Tax Code. To the administration's credit they haven't just put out 
these regulations saying let's slow down on inversions, they have just 
said we do need to reform the Tax Code. That is the truth.
  This town is not doing its work. We are not doing what the people 
have elected us to do, which is to fix problems like this. We are 
letting this fester. Again, every week we have another example of this. 
It is no secret why this is happening. At a combined 39-percent tax 
rate, the United States now has the highest business tax rate of any of 
the industrialized countries. It is a No. 1 that you don't want to be.
  Second, we don't let companies that are American companies bring 
their profits back here without paying that prohibitively high tax, so 
they have locked up their profits overseas. You probably heard this, 
but they say there is about $2.5 trillion in earnings that are locked 
up overseas that could come back to create jobs right here, expanding 
plants and equipment and adding more employees. Instead, because of our 
Tax Code, it is not coming back--$2.5 trillion.
  Importantly, the burden of this falls on American workers--think 
about it--No. 1, because these companies in America are not as 
competitive as they should be because of our Tax Code. According to the 
studies, wages are lower, benefits are lower, U.S. workers are caught. 
This is one reason among others that we have wage stagnation in this 
country, because our Tax Code is so out of date. Just by fixing the Tax 
Code we could give the economy a shot in the arm and help lift up those 
wages. Instead, so many workers in my home State of Ohio and around 
this country are working hard, playing by the rules, and doing 
everything right. Yet their wages are flat--even, on average, 
declining.
  This is a new phenomenon for us in this country, but in the last 6 
years wages have gone down, on average, not just stayed flat. By the 
way, expenses are up: health care, thanks to ObamaCare, tuition costs, 
energy costs, electricity bills, food costs. It is called the middle-
class squeeze--flat wages, higher expenses. One way to fix that is to 
put forward pro-growth policies that can actually make a difference in 
getting this economy moving. Specifically, we have an example where if 
we had a better Tax Code based on the economic analysis, it would 
result not just in more jobs but better jobs. It is a way we can help, 
not just to bring back the jobs but to bring back better jobs.
  Almost all of our competitors--think of the UK, Japan--have lowered 
their rates, and they have also gone to a competitive international tax 
code where their companies can bring their earnings back to invest in 
their country. So they are beating us. America is falling behind 
because of this problem.
  American companies are much more valuable as foreign headquarters 
then they are in the hands of U.S. owners. It is the primary reason, by 
the way, that last year the number of acquisitions of U.S. companies by 
foreign companies doubled.
  Let me say that again. Last year there were twice as many foreign 
takeovers as there was the year before--twice as many. Something is 
happening here. By the way, this year the $275 billion worth of 
takeovers we saw last year is likely to go to over $400 billion, we are 
told. So it is not quite a doubling this year but pretty darn close. 
Again, there is something happening.
  My concern is, if we don't do something about this, we are going to 
look back 4 or 5 years from now and say what happened, all these great 
U.S. companies have gone overseas. It is not just pharmaceutical 
companies, it is across the board. It is all kinds of industries. Try 
to buy an American beer. The largest U.S. beer companies are now Sam 
Adams, with about 1.4 percent market share, and Yuengling, with about 
the same market share. All the rest are foreign-owned--all of them--
because of our Tax Code. Anheuser-Busch went overseas. Miller is 
overseas. Coors is overseas. You go right down the line of American 
businesses that are affected by this, and it is thousands and thousands 
of jobs.
  We did a little investigation of this in the subcommittee that I had, 
called the Permanent Subcommittee on Investigations. I cochair it with 
Claire McCaskill, who is a Democrat from Missouri. We looked into these 
issues, did some research, and said it was worth having a hearing to 
bring some of these facts to light. We did this a couple of months ago. 
This is what we found out. Having reviewed more than a dozen foreign 
acquisitions of U.S. companies and mergers where the headquarters end 
up being overseas, we found out that jobs are being lost, investments 
are being lost--not a surprise. It is not just the headquarters that 
move, it is the people, the money.
  One prominent case study we looked at was the acquisition of this 
Valeant pharmaceutical company that I talked about earlier. Valeant is 
now a company in Quebec. They merged with a company in Canada. When 
they went up there they decided: You know what. We are now going to 
start buying U.S. companies because we have such an advantage. We can 
pay a premium. They have now managed to acquire more than a dozen U.S. 
companies worth more than $30 billion.
  We reviewed some of the key deal documents to understand how the tax 
advantages affected these acquisitions, specifically. How did it affect 
them? We were able to look at the 2013 sale of the New York-based eye 
care firm, Bausch & Lomb. Anybody who wears contact lenses has probably 
heard of them. We looked at the 2015 sale of this North Carolina 
company called Salex that I talked about a moment ago. In

[[Page S7730]]

those two acquisitions alone, Valeant determined they could shave more 
than $3 billion off the tax bill just by integrating these companies 
into their Canadian-based operations. Think about that.
  What do these deals mean to the American worker? Well, the three 
recent Valeant acquisitions we studied resulted in the 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 United States to Canada--
additional jobs being lost. Again, this is happening as we talk 
tonight. There are companies considering leaving our shores because our 
Tax Code is so outdated and so antiquated.
  We talked about the beer industry. The subcommittee took testimony 
from a guy named Jim Cook. Jim Cook is the founder and chairman of the 
Boston Beer Company. You might know him as the maker of Sam Adams. The 
market share is about 1.4 percent. Mr. Cook 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. He 
comes back to his office after being away for a week and what does he 
find in his inbox, a bunch of proposals from investment banking firms 
saying: Why don't you go overseas? We will show you how do it. We will 
save you all kinds of money. Become a foreign corporation. This is 
happening all over the country.
  Mr. Cook, to his credit, is a real patriot. He doesn't want to become 
a foreign company. He has declined all these offers, but he also 
informed us that when he is gone he believes that company will be 
driven by financial pressure to become an overseas company. He owns a 
majority of the company's voting shares. He is fortunate. Not all CEOs 
are in that position, of course. They can't afford--because they have a 
fiduciary responsibility to their shareholders--to be able to withstand 
this pressure to go overseas.
  So in our subcommittee hearing and in some of the dialogue on the 
floor and elsewhere, we heard a lot of criticism of these companies 
that have gone overseas. I will say the plain truth, which is, if there 
is any villain in this story, it is not those companies. I wish they 
would stay here, but it is not those companies. It is our Tax Code and 
it is Washington.
  Just another example, along with regulatory relief, as we talked 
about earlier tonight, along with expanding exporting and being sure 
imports are fairly traded, along with dealing with our education system 
and our worker retraining system at the Federal level that is not 
working--all of these things need to be changed. Our energy approach to 
have a one-size-fits-all policy, that is Washington that can and should 
do that.
  There are so many issues that we are not addressing in terms of the 
debt and the deficit, economic issues. This is another one and this one 
is just so obvious.
  Mr. Cook is famous today, the founder and chairman of Boston Beer 
Company Sam Adams, because he was in a Wall Street Journal editorial. I 
commend that editorial to you. It talks about exactly what I mentioned 
earlier, which is because the aftertax profit is greater for a foreign 
company, they can pay a premium. It talks about the fact that as 
compared to being able to bring a dollar back from overseas as a U.S. 
company and having 39 percent of it taxed, with a foreign entity--for 
instance, what could happen with Pfizer--they can go overseas, become 
an Irish company, and only pay 12 percent. They can bring 88 cents of 
that dollar back to this country. What an irony. They can invest more 
in America by being a foreign company. We would like them to be able to 
be an American company, bring that money back that is overseas, and 
build investments, jobs, plants, equipment, and people.
  The Wall Street Journal editorial was wrong in one regard; that is, 
they said Jim Cook is a bearded brewer. He doesn't have a beard, but he 
is a brewer. They also said this is an issue that divides Democrats and 
Republicans. I would say with respect, as a Republican on this side of 
the aisle, it is not that simple. There are Democrats who actually 
think we should be reforming the Tax Code. There are a lot of 
Republicans who think that too. In the Presidential debate you can see 
a lot of Republicans talking about it. Hillary Clinton, on the other 
hand, doesn't seem much interested in it. She wants to punish these 
companies that go overseas. That is not going to help. That will cause 
more companies to go overseas. They will vote with their feet, but I 
don't believe this is a partisan issue.
  I actually believe there are people of good will on both sides of the 
aisle who get this.
  Senator Schumer and I did a report after a working group that we were 
asked to chair by our leadership where we came up with the conclusion 
that we had to fix this system. Senator Schumer is a Democrat and I am 
a Republican. We don't agree on a lot of things. But we agreed on this 
because after hearing testimony from people, including CEOs of 
companies that were struggling with this decision, we realized we had 
to deal with it. We have to deal with it. I believe ultimately that 
what we have to do is to overhaul our entire Tax Code. We should deal 
with the individual side of the code, we should lower that rate and 
broaden the base, in other words, get rid of a lot of the preferences 
and loopholes.
  On the corporate side, we should do the same thing and get the 
corporate rate so it is competitive. A 25-percent rate rather than a 
35-percent rate would make a big difference.
  The overhaul is necessary for us to be able to give the economy the 
real shot in the arm it deserves. But in the short term, we have a 
President who refuses to reform the taxes on the individual side 
without raising significant new revenues--in other words, increasing 
taxes dramatically, a couple of trillion dollars in his budget. We are 
not going to do that because that would hurt the economy too much. But 
even with a President who believes that on the individual side, there 
does seem to be more consensus on this business issue--what to do with 
the business tax code--particularly as it relates to the international 
tax code we talked about. So my feeling is, let's take a first step. 
Let's do what we can do on a bipartisan basis. Let's build on that 
consensus that we have reached--that we have to fix this problem now or 
we are going to see more and more companies and jobs and investment go 
overseas. Let's come up with something that addresses that specific 
problem.
  In July, in this report that Senator Schumer and I released, we 
suggested three things where we can find a consensus. One, let's move 
to that international tax system where we can allow people to bring 
their earnings home. Let's not lock those earnings up overseas. Let's 
have what you would call a permanent repatriation and allow that money 
to come back. By the way, that money could be used for all kinds of 
things, including infrastructure. So it could be tied to the highway 
bill. But it is important for me that we change the system to allow 
those funds to come back here and create jobs and opportunity in 
America. There is $2.5 trillion locked up overseas.
  Second, we said we ought to have incentives to be able to keep 
intellectual property, which is highly mobile, here in America, because 
a lot of countries around the world now are setting up what they call 
patent boxes or innovation boxes, and they are attracting our best and 
brightest. They are creating now a nexus between the lower rate you get 
if you move that intellectual property overseas and the researchers. In 
other words, they will give you a low tax rate, but you have to move 
the expertise there too.
  Again, we are going to look back a few years from now if we don't 
deal with this and say: What happened? Some of our best researchers, 
some of our best colleges and universities here are now not doing the 
work anymore because it is being done overseas, because they are 
providing the inventive and we are not.
  Third, we agree we do need to have some sensible base erosion 
protections that would discourage companies from shifting their income 
to low-tax jurisdictions, to tax havens, just for that purpose. By the 
way, the businesses that we talked to around the country agree with 
that. They would like to see a lower tax rate also. That is incredibly 
important. That is the obvious next step. But I do think there is an 
opportunity for us to act and to act now to be able to help give the 
economy a shot in the arm, to bring back the trillions of dollars from 
overseas, and to

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help us stop this exodus of jobs and investment in U.S. companies 
overseas.
  I also believe we could act this year on this. We know what to do. 
There have been plenty of reports and studies. There is actually a tax 
proposal introduced by Dave Camp, who was the chairman of the Ways and 
Means Committee prior to Paul Ryan. Paul Ryan, who is now Speaker of 
the House, is very interested in this. He has done a lot of good work 
on this. The Ways and Means Committee and the Finance Committee have 
held literally dozens of hearings. We know what to do. It is a question 
of political will to get it done.
  As we do that, we should also be sure to address the annual tax 
extenders. These are provisions for the Tax Code that are only in place 
for a short period of time. Right now they have already expired. The 
idea is that at the end of the year we might once again retroactively 
extend these tax provisions. Think of the R&D tax credit, for instance, 
or the research and development tax credit. That is very important.
  We think we should make those extenders that are good policy 
permanent. If we did that and we did this tax reform we talked about 
earlier, which by the way would be revenue neutral, this is the one 
area where the President of the United States and other Democrats are 
willing to say: Let's not try to wring more taxes out of the system; 
let's try to do this on a revenue-neutral basis.
  By the way, it is going to be so pro-growth that it will result in 
more revenue coming in, not because you raise taxes, but because it is 
the right thing to do to encourage jobs, investment, and opportunity. 
But if you did these tax extenders along with it, you would be making 
the policies permanent, which would provide a huge boost to the 
economy. The Joint Committee on Taxation found that the short-term 
extenders that were passed by the Senate Finance Committee last month--
this is just a short-term one for a 2-year extension, would create 
$10.4 billion in new tax revenue over the next 10 years. Think about 
that. That is just a short-term extension. Imagine the growth if those 
were made permanent.
  So we do have the opportunity here to do something good for our 
country, for our companies, and, most importantly, for American 
workers, and one that is going to result in growth in the economy and, 
therefore, in revenue through growth, not through higher taxes but in 
fact by getting the tax rates down and having a competitive 
international tax system.
  The last thing we want to do is to look back a few years from now and 
say: We had this opportunity. In this area, at least, we have a 
President willing to work with us. We have some Democrats and 
Republicans willing to join hands and get something done. We missed the 
opportunity. Now we are seeing this unfortunate movement of more and 
more of our great American companies overseas. We are seeing the 
American tax base being eroded. We are seeing something that would take 
away the opportunity for us to help get this economy back on track for 
everybody, for the shared prosperity that we all seek.
  If that happens, we will have no one to blame but ourselves here in 
this town. So I would encourage my colleagues again: Look at what is 
happening. Look at what happened with Pfizer last week, with Shire this 
week, and with yet another company I am sure next week. We need to wake 
up and realize that if we don't act--and we alone can act because this 
requires a change in tax policy. It cannot happen through more 
regulations. It has to happen by changing the law. If we don't act, we 
are not doing our duty to those who sent us here to represent them.
  I yield the floor.

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