[Congressional Record Volume 163, Number 123 (Thursday, July 20, 2017)]
[Senate]
[Pages S4101-S4102]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]



                               Tax Reform

  Mr. President, to change the subject, I would like to speak about the 
effort to reform our Nation's Tax Code. Last week, I came to the floor 
to give what I promised would be the first in an ongoing series of 
statements about tax reform. Today, I would like to give the second 
speech on that subject in this series.
  As I have said before, while there are tax reform discussions ongoing 
between congressional leaders and the administration, I expect there to 
be a robust and substantive tax reform process here in the Senate, one 
that will give interested Members--hopefully from both parties--an 
opportunity to contribute to the final product. I anticipate that, at 
the very least, the members of the Finance Committee will want to 
engage fully in this effort.
  I have been working to make the case for tax reform for the last 6 
years, ever since I became the lead Republican on the Senate Finance 
Committee. This current round of floor statements is a continuation of 
that effort.
  Last week, I spoke on the need to reduce the U.S. corporate tax rate 
in order to grow our economy, create jobs, and make American businesses 
more competitive. Today's topic is closely related to that one. Today, 
I want to talk about the need to reform our international tax system.
  Over the last couple of decades, we have enjoyed a rapid advancement 
in technology and communication, which has been a great benefit to 
everyone and has improved the quality of life for people all over the 
world. Unfortunately, our tax system has failed to evolve along with 
everything else.
  For example, in the modern world, business assets have become 
increasingly more mobile. Assets like capital, intellectual property, 
and even labor can now be moved from one country to another with 
relative ease and simplicity. Assets that are relatively immobile--
those that cannot be easily moved--are becoming increasingly rare. The 
Tax Code needs to change to reflect that fact.
  Our current corporate tax system imposes a heavy burden on 
businesses' assets, which creates an overwhelming incentive for 
companies to move their more mobile assets offshore, where income 
derived from the use of the assets is taxed at lower rates.
  As I noted last week, there is no shortage of lower tax alternatives 
in the world for companies incorporated in the United States. It does 
not take a rocket scientist to understand this concept. All other 
things being equal, if there are two countries that tax businesses at 
substantially different rates, companies in the country with higher tax 
rates will have a major incentive to move taxable assets to the country 
with lower rates. That dynamic only moves in one direction, as there 
are not many companies that are looking to move to higher tax 
countries, like the United States, from lower tax jurisdictions. This 
is not just a theory; this has been happening for years.
  An inversion, if you will recall, is a transaction in which two 
companies merge, and the resulting combined entity is incorporated 
offshore. Let me repeat some numbers that I cited last week. In the 20 
years between 1983 and 2003, there were just 29 corporate inversions 
out of the United States. In the 11 years between 2003 and 2014, there 
were 47 inversions--nearly double the number in half the amount of 
time. That number includes companies that are household names in the 
United States. This is happening in large part because of the perverse 
incentives embedded in our corporate tax system and the stupidity of us 
in the Congress to not solve this problem.
  Keep in mind that I am only talking about inversions. There are also 
foreign takeovers of U.S. companies, not to mention arrangements that 
include earnings stripping and profit shifting. The collective result 
has been a massive erosion of the U.S. tax base and, perhaps more 
importantly, decreased economic activity here at home.
  Make no mistake--our foreign competitors are fully aware of these 
incentives. They have recognized that lowering corporate tax rates can 
help them lure economic activity into their locations. Yet, in the face 
of this competition, the U.S. tax system has remained virtually frozen.
  As I noted last week, reducing the corporate tax rate would help 
alleviate these problems, but more will be required, including reforms 
to our international tax system.
  Currently, the United States uses what is generally referred to as a 
worldwide tax system for international tax, which means that U.S. 
multinationals pay the U.S. corporate tax on domestic earnings as well 
as on earnings acquired abroad. Taxes on those offshore earnings are 
generally deferred so long as the earnings are kept offshore and are 
only taxed upon repatriation to the United States after accounting for 
foreign tax credits and the like.
  Put simply, this type of system is antiquated. The vast majority of 
our foreign counterparts have already done away with worldwide taxation 
and have converted to a territorial system. Generally speaking, a 
territorial system is one in which multinational companies pay tax only 
on earnings derived from domestic sources.
  By clinging to its worldwide tax system and a punitively high 
corporate tax rate, the United States has severely diminished the 
ability of its multinational companies to compete in the world 
marketplace. Because U.S.-based companies are subject to worldwide 
taxation while their global competitors are subject to territorial 
taxation systems, U.S. companies all too often end up having to pay 
more taxes than their foreign competitors, putting them at a distinct 
competitive disadvantage.
  Generally speaking, foreign-based companies pay taxes only once at 
the tax rate of the country from which they have derived the specific 
income. A U.S. multinational, on the other hand, generally pays taxes 
on offshore income at the rate set by the source country but then gets 
hit again--and at a punitively high rate--when it repatriates its 
earnings back to America.
  This is stupidity in its highest sense. This needs to change. It is 
not only Republicans who are saying that; many Democrats have 
recognized this issue as well. For example, I will cite the Finance 
Committee's bipartisan working group on international tax, which is 
cochaired by Senators Portman and Schumer, our ranking minority leader, 
which examined these issues thoroughly and produced a report in 2015. 
In that report, after noting that most industrialized countries have 
lower corporate rates and territorial systems, this bipartisan group of 
Senators said: ``This means that no matter what jurisdiction a U.S. 
multinational is competing in, it is at a competitive disadvantage.''
  The report by Senators Portman and Schumer and the members of their 
working group also referred to something called the lock-out effect. 
Simply put, the lock-out effect refers to the incentives U.S. companies 
have to hold foreign earnings and make investments offshore in order to 
avoid the punitive U.S. corporate tax. This is not a dodge or a tax 
hustle on the part of these companies; they are simply doing what the 
Tax Code tells them to do. The Tax Code essentially tells U.S. 
companies: You can have $100 in Ireland, say, or you can have $65 in 
the United States.

[[Page S4102]]

Well, no surprise here--companies generally opt to have $100 in 
Ireland.
  Currently, a huge amount of capital--as much as $2.5 trillion or 
maybe even more--that is held by U.S. multinational companies is 
effectively locked out of the United States and is unavailable for 
investment here at home. However, as Senators Schumer and Portman and 
their colleagues on the international tax working group noted, those 
funds can easily be used to grow the economies of those foreign 
countries that have kept their tax codes up to date.
  These are massive problems, and if we are going to put together an 
effective tax reform package and be competitive, we will have to find a 
way to tackle these issues. The most obvious way, of course, would be 
with a combination of reducing our corporate tax rates, transitioning 
to a territorial tax system, and ensuring protection of the U.S. tax 
base from things like earnings stripping and profit shifting. That 
approach, as it turns out, has bipartisan support.
  These matters represent a significant portion of our tax reform 
efforts, and we already know it is one on which Republicans and 
Democrats can agree, at least in concept. In other words, there is 
ample reason for our Democratic colleagues to join Republicans and for 
Republicans to join Democrats in the tax reform discussions.
  These issues are not just important for faceless corporations or tax 
planners; they are important for American workers who are up and down 
the income scale. Anyone who is hoping to have a job and opportunities 
here in the United States and not somewhere else has an interest in 
reforming our international tax system. If we pass up this current 
opportunity to address these issues, people should expect to see more 
and more economic activity and the headquarters and supporting staff of 
more household-name companies moved outside the United States.
  With bipartisan recognition of the need for reform and agreement on 
international concepts already having been displayed, we owe it to the 
American people to work together and fix this problem.
  As I have said multiple times, I hope my friends on the other side of 
the aisle will be willing to work with us on tax reform, but if they 
decline--and, sadly, we have seen some indication that they will--
Republicans will need to be ready to take steps to fix these problems. 
I think we will be ready. Indeed, I think we are more than up to the 
challenge. I hope we do something about these important issues.
  I yield the floor.
  The PRESIDING OFFICER. The Senator from Connecticut.