Statement of Senator
Michael B. Enzi
The United States Job
Creation and International Tax Reform Act of 2012
February 9, 2012
MR. ENZI. Mr. President, I rise today to speak about a bill I am introducing today, the United States Job Creation and International Tax Reform Act of 2012. The name says it all – this is a bill that would incentivize American companies to create jobs in the United States, while at the same time leveling the playing field for U.S. companies in the global marketplace. This bill would reform and modernize the rules for taxing the global operations of American companies, and would help make America a more attractive location to base a business that serves customers around the world.
Unfortunately, our current tax rules do just the opposite. In fact, many businesses could be better off if they are headquartered outside of the United States! This is not right, and Congress should fix it. This bill would do just that.
I want to thank Senator Hatch and members of his staff who have been helpful in working through the complexities of international tax. I also want to mention that Eric Oman, a member of my staff and a CPA who worked with me in developing this legislation, has lived overseas as well, working with the U.S. tax laws. I thank all who have testified before the Finance Committee, especially Scott Naatjes, Vice President and General Tax Counsel for Cargill, Incorporated, who has dealt with the complex accounting of foreign earnings and money to be repatriated to the United States. He gave us insight into the years of records that have to be reviewed for a single item in the complex web of the current international tax system. And finally I want to thank Dave Camp, Chairman of the House Ways and Means Committee, who kickstarted the discussion on tax reform when he released his discussion draft last October.
Enacted in the 1960s, our current international tax rules have passed their expiration date. Many of the United States’ major trading partners, including Canada, Japan, and the UK, have moved to what are called “territorial” tax systems. Those types of tax systems tax the income generated within their borders and exempt foreign earnings from tax. The United States, on the other hand, taxes the worldwide income of U.S. companies, and provides deferral of U.S. tax until the foreign earnings are brought home. Deferring the tax incentivizes the companies to leave their money abroad and expand there. Because the U.S. has nearly the highest corporate tax rate in the world, companies don’t bring those earnings back home and instead reinvest outside of the United States. That’s certainly not a recipe for U.S. growth and U.S. job creation.
The dominance of U.S.-headquartered companies in the global marketplace is waning. 36 percent of the Fortune Global 500 companies were headquartered in the United States in 2000; in 2009, that number dropped to 28 percent. Clearly, America is losing ground, and our current international tax rules are part of the problem.
The bill I’m introducing today would help to right the ship by pulling our international tax rules into the 21st century so that U.S. companies are not at a competitive disadvantage with foreign companies because of American tax rules, outdated by changes most other countries have already made. This bill would give U.S. companies incentives to create jobs in the United States and undertake activities in the United States in order to win globally.
First, if the foreign earnings have already been subject to tax in a foreign country, this bill would provide a 95-percent exemption from U.S. tax on those foreign earnings. This would allow for American-managed capital to be put to its most productive use and help stabilize our economy.
Second, this bill would allow foreign earnings that are currently sitting overseas to be brought back to America at a reduced tax rate – not a zero tax rate, but a greatly reduced tax rate and with the ability to pay the taxes owed in installments. This provision would serve as a transition to the new territorial system by allowing U.S. companies to unlock a significant amount of capital currently being held offshore and quickly move into the new territorial system. And that means more jobs and a better
Third, this bill would reduce the U.S. tax burden on income generated by American companies from ideas and inventions. This bill would encourage companies to develop and keep rights to ideas and inventions in the United States. When families tune in to 60 Minutes on Sunday evenings, they would hear fewer stories about how U.S. companies are moving their profits to tax haven countries and avoiding U.S. tax on those earnings. Families would hear fewer stories about how U.S. multinational companies set up post office boxes in the Cayman Islands and Switzerland without an employee or officer of the company anywhere in sight and attribute a significant portion of their foreign earnings to these jurisdictions. Instead, families would hear more stories of how U.S. companies are generating the ideas and inventions of tomorrow right here in America.
This bill is a first step in tax reform. We have a lot of work to do in many other areas of the tax law in order to make it simpler, fairer, and more transparent. We need to be looking at the individual tax system, the corporate tax system, and how we tax pass-through entities like partnerships and S-corporations. I also recognize that as we move forward in these other areas, it may be appropriate to make changes to this bill. This is exactly how the legislative process should work, and I look forward to getting back to conducting the Senate’s business in regular order, where we work through the issues in committee and offer amendments to improve the bills that ultimately come to the Senate floor.
But today, with the introduction of this bill, we move from discussion to action with respect to this piece of tax reform. The Simpson-Bowles deficit commission recommended a move to a territorial system, and I am glad to be moving the conversation forward on this recommendation with the introduction of this bill today.
I hope this bill will begin a discussion – a discussion of fairness that needs to begin yesterday. I hope that members and their staff will review the bill and the detailed explanation that we have prepared. I also ask that all interested stakeholders review the bill and reach out to my staff to discuss what they like, what they don’t like, and their suggestions for improvements.
The international tax rules are not easy or simple, and reforming them will be a heavy lift. But those things worth doing rarely are easy or simple. I look forward to joining with my colleagues to pass international tax reforms that our American companies and our country desperately need.
Mr. President, I yield the floor.