Mr. Speaker, today, I am proud to introduce legislation that will protect American jobs and will create new job opportunities for those Americans in search of employment. The American Competition Enhancement Act of 2003 would ultimately…
Mr. Speaker, today, I am proud to introduce legislation that will protect American jobs and will create new job opportunities for those Americans in search of employment.
The American Competition Enhancement Act of 2003 would ultimately provide an across-the-board tax cut of 5 percent for all corporations. Specifically, the ACE Act will cut the corporate tax rate by 3 points in 2004, initially lowering the corporate rate to a tax level of 32 percent. Three years later, the ACE Act would cut the tax rate by an additional 2 points, lowering the rate for corporations to 30 percent in 2007.
Since 1996, our trading partners have realized that being competitive in the global marketplace requires cutting taxes of the businesses that employ their workers. Many countries, including Australia, Canada, France, Germany, Japan, Poland and Turkey, have cut their corporate tax rates drastically--some by 10 percent or more. In fact, the average top corporate tax rate for governments in the Organization for Economic Cooperation and Development (OECD) has dropped from a rate of 41 percent in 1986 to 30.9 percent in 2003, while the U.S. corporate rate has remained unchanged at 35 percent over the same period. When state and local taxes are added on top of this rate, the U.S. corporate tax rate averages 40 percent--which is more than 9 percentage points higher than the OECD average.
While other countries have learned that lower taxation enables them to compete for business, and ultimately jobs, the United States has failed to respond, and American workers have suffered. Many in this Congress have remained content to sit idly by as other nations have lowered corporate taxes. Instead of freeing American businesses and our workers from oppressive taxation and burdensome regulations, this Congress has continued to support efforts to make our tax code more ambiguous and difficult to navigate.
Over the past 20 years, the Congress has passed tax law that has led to the creation of complicated and excessive rules--rules that have negatively impacted the ability of American companies to compete in the world market. These have been ``defensive'' responses to competition, not ``offensive'' responses to increasing worldwide competition. Throughout, the Twentieth Century, the United States competed aggressively in the world market, and as a result our competitors responded. To remain competitive, this Congress MUST act again, and we MUST begin by reforming our tax policy that has become a choke collar on our American workers, restricting them from being free to compete with other workers in the world market.
As this Congress debates export subsidies and global competition, we will continue to hear much about the challenges faced by American manufacturers. Yet, the first and foremost challenge that American manufacturers, and all American employers, face is an increasingly restrictive and oppressive tax code. The ACE Act would address this fundamental issue and enable American workers in all sectors, including manufacturing, to once again compete in the world market. This bill would instill confidence in our manufacturing industry and would entice many other industries to operate here instead of locating overseas.
As the greatest workers in the world, there is little doubt about the outcome, if only the Congress will free our workers to compete.
Some will say that we cannot afford the ACE Act, but American workers cannot afford the alternative--continued taxation that restricts, limits and chokes their ability to compete. Some are saying that any tax legislation must be budget neutral; yet, over the last two years, the corporate income tax structure remains unchanged, and corporate revenue has only declined. In fact, Corporate Income Tax Revenue has decreased significantly--from 2000 to 2001 Corporate Income Tax Revenues fell from $207.3 billion to $151.1 billion, a decrease of $56.2 billion; in 2002, Corporate Income Tax Revenue dropped to $148 billion--a decrease of $59.3 billion from the 2000 level. In 2 years, our corporate tax laws have resulted in lost jobs, lost dollars in American workers' pockets, and a combined loss in revenue of $115.5 billion (See Table F-3 of the Congressional Budget Office--Budget and Economic Outlook: Fiscal Years 2004-2013).
Over the past 3 years the United States has seen a loss of 2.7 million manufacturing jobs--with an average of 60,000 job losses per month over the past 2 years. Some of these jobs have disappeared due to increased production efficiencies, but many more have been relocated overseas.
History has shown that lower taxation leads employers to keep the employees they have, to invest in capital expenditures that create new jobs, and to increase their profits which, in turn, means economic growth, more jobs, more exports, more production, and, ultimately, more dollars flowing to the Federal Treasury. Let us learn from history and pass meaningful tax relief to stimulate economic growth and, in turn, increase the funds in workers' pockets; ultimately, this would mean more dollars for the Treasury of the United States.
I urge my colleagues in this House to consider the actions of others around the world, to consider history's lessons, and, most importantly, to consider the effect of our tax code on workers in their own districts. I have considered this all and am determined that we must
free American workers from the choke collar of taxation. This Congress must act and provide much needed relief for all American corporations that employ our people.
Mr. Speaker, I call on the House to consider American workers and consider the challenges they face. It is time that the House pass solid, meaningful tax legislation that supports the American worker.
[From the Tax & Budget Bulletin, CATO Institute]
The U.S. Corporate Tax and the Global Economy
(By Chris Edwards, Director of Fiscal Policy, Cato Institute)
The corporate income tax is at the center of numerous
policy debates today. First, the World Trade Organization has
ruled that the U.S. Foreign Sales Corporation/
Extraterritorial Income Exclusion (FSC/ETI) tax break given
to exporters is illegal. The European Union has threatened
the United States with trade retaliation unless it repeals
FSC/ETI by the end of this year. Next, corporate tax
avoidance has been in the news in the wake of the Enron
scandal. Finally, there is growing concern that the corporate
income tax damages business competitiveness and reduces U.S.
economic growth.
In response to the WTO ruling, bills have been introduced
to repeal FSC/ETI, including H.R. 2896 by Ways and Means
chairman Bill Thomas (R-Cal.) and H.R. 1769 by Phil Crane (R-
Ill.) and Charles Rangel (D-N.Y.). The Thomas bill, and a
similar proposal by Senator Orrin Hatch (R-Utah), includes
many useful tax reforms in exchange for repeal of the $5
billion per year FSC/ETI provision. However, more fundamental
tax reforms are needed, including a large cut to the
corporate tax rate.
corporate tax reform is long overdue
Global direct investment flows rose six-fold in the past
decade, and research shows that these flows are increasingly
sensitive to corporate taxes. To attract capital and build
the economy, the United States should have a neutral and low-
rate corporate tax. Instead, the United States has perhaps
the most complex corporate tax and the second highest
corporate tax rate among major nations.
The U.S. statutory corporate tax rate is 40 percent, which
includes the 35 percent federal rate and an average state
rate of 5 percent. By comparison, Figure 1 shows that the
average rate for the 30-nation Organization for Economic
Cooperation and Development is 30.9 percent, down sharply
from 37.6 percent in 1996.
Aside from a high rate, the U.S. corporate tax has
uncompetitive rules for firms that compete in foreign
markets. The U.S. Treasury's assistant secretary for tax
policy, Pam Olson, recently testified that ``no other country
has rules for the immediate taxation of foreign-source income
that are comparable to the U.S. rules in terms of breadth and
complexity.'' The complexity of the U.S. rules on foreign
income are infamous--Dow Chemical has calculated that 78
percent of its 7,800-page U.S. tax return relates to the
rules on foreign income.
Part of the problem is that Congress has viewed
corporations as cash cows, and has shown little concern that
high taxes reduce investment and drive capital and profits
abroad. One example of how the demand for more tax revenue
can backfire is the taxation of ``foreign base company
shipping income.'' It used to be that the foreign income
earned by cargo ships and other vessels owed by U.S.
subsidiaries was not taxed until repatriated to the United
States. However, Congress changed the rules in 1975 and 1986
to tax that income immediately as earned. But rather than
raising federal revenue, the changes reduced revenue as the
U.S.-owned shipping fleet shrunk and the tax base
disappeared. The U.S. share of the world's open-registry
shipping fleet fell from 25 percent in 1975 to less than 5
percent today. The Thomas and Hatch bills include a fix to
this counterproductive tax provision.
thomas bill includes modest REforms
The corporate tax reform bill introduced by Bill Thomas
would reduce the double taxation of foreign income earned by
U.S. multinational corporations (MNCs) and simplify the rules
for foreign tax credits and subpart F income. Simplifying and
reducing taxes on MNCs would benefit the U.S. economy in a
number of ways. U.S. MNCs would be able to increase U.S.-
based research and other headquarters activities if their
foreign operations were larger and more profitable. Also,
MNCs could better penetrate global markets with U.S. exports
if their foreign affiliates were more competitive. Indeed,
U.S. Department of Commerce data show that U.S. MNCs account
for two-thirds of all U.S. merchandise exports. By making
U.S. MNCs more competitive, the Thomas bill would boost U.S.
exports, employment, and incomes. The Thomas bill also
includes other useful but limited reforms, including faster
depreciation for some equipment investment, liberalizing the
subchapter S rules for small corporations, and changes to the
corporate alternative minimum tax.
The Crane-Rangel bill provides a targeted tax break for
manufacturing. A new deduction would reduce the tax rate for
domestic manufacturing by 3.5 percentage points, but would
not cut taxes for other types of businesses. This is poor
policy compared to a broad-based tax cut because it would
increase tax complexity and divide the business sector even
further into separate lobbying camps, each wanting narrow
breaks rather than overall reforms.
more fundamental reforms needed
Rather than provide narrow breaks, Congress should cut the
35 percent corporate tax rate to 20 percent so that the
United States becomes a tax reform leader, not a laggard. In
order not to increase the deficit, a rate cut could be paired
with cuts to federal spending on business subsidies, which
currently total about $90 billion per year. Such a reform
package would increase investment and employment incentives
for all firms and reduce government favoritism and business
distortions.
Beyond a rate cut, Congress should consider full repeal of
the corporate tax or replacement with a cash-flow tax. A cash
flow tax would increase domestic investment and make U.S.
firms more competitive in global markets because firms would
not be taxed on their foreign business income. A cash-flow
tax would also reduce wasteful tax sheltering. Indeed, most
of Enron's tax shelters would not have been possible under a
cash-flow tax.
Congress should aim to give this country the best possible
corporate tax environment, not one of the worst. A good first
step would be to simplify and reduce taxes for U.S. MNCs, and
then follow up with a reduction of the corporate tax rate to
20 percent.