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| July 25th, 2003 |
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Media Contact(s): Adam Elggren, 202.224.5251 |
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Printable Version |
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HATCH INTRODUCES BILL TO REVAMP TAX LAWS FOR U.S. MULTINATIONALS
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Washington, D.C. — Sen. Orrin Hatch (R-Utah) today joined House Ways and Means Chairman Bill Thomas to announce legislation that would repeal laws on the taxing of overseas income of corporations that have been declared illegal by a World Trade Organization (WTO) ruling.
“In order to avoid the very real prospect of trade sanctions from the E.U., we simply must comply with our obligations under the WTO and repeal these provisions,” Hatch said. “I believe most Members of Congress are in agreement with this. However, we don’t agree on the provisions that should replace the FSC/ETI benefit. Chairman Thomas and I believe that the best solution is one that will help all U.S. companies, those that operate primarily at home as well as those that have global operations.”
Hatch said the following principles underlie the bill he will introduce today:
• Provide generous transition relief for those companies that have been using the FSC/ETI provisions.
• Ensure that replacement legislation increases the global competitiveness of all U.S. companies, both domestically and abroad.
• Increase the productivity growth of our workers, which will lead to long-term prosperity for all Americans.
• Improve the outdated and hideously complex rules that U.S. companies have to deal with when they begin expanding their operations overseas.
• Simplify the tax code to the extent possible.
Hatch’s full press conference statement follows:
Remarks of Senator Orrin Hatch
Press Conference
Introducing the PRO-GROW USA Act
Good morning, ladies and gentlemen. I am very pleased to be joining my friend and colleague, the Chairman of the Ways and Means Committee, in introducing some very important legislation.
Like Chairman Thomas, I wish we did not have to be here today talking about repealing a provision in our tax law that has helped many U.S. companies compete globally. But, unfortunately, the World Trade Organization has ruled that the so-called FSC/ETI is an illegal trade subsidy.
In order to avoid the very real prospect of trade sanctions from the E.U., we simply must comply with our obligations under the WTO and repeal these provisions. I believe most Members of Congress are in agreement with this.
However, we don’t agree on the provisions that should replace the FSC/ETI benefit. This repeal represents a very significant tax increase on American companies and American workers. The difficult part is that we cannot, in a WTO-compliant way, replicate these benefits to those that are losing them.
One leading proposal to solve this problem is to give a tax exemption to domestic manufacturers. I am certainly not opposed to this, but I believe it is only a partial solution, because it focuses only on domestic manufacturers.
You may be wondering why Chairman Thomas and I are standing here together today, when our bills are quite different in many respects. It is because both he and I believe that the best solution is one that will help all U.S. companies, those that operate primarily at home as well as those that have global operations.
There are several principles that underlie this bill I am introducing today.
The first is that we should provide generous transition relief for those companies that have been using the FSC/ETI provisions. We need to give them time to adjust to the new circumstances forced upon us by the WTO decision.
Second, we must ensure that replacement legislation increases the global competitiveness of all U.S. companies, both domestically and abroad.
Third, we should increase the productivity growth of our workers, which will lead to long-term prosperity for all Americans. We do this by encouraging companies to invest in R&D; and in the most productive machines available.
Fourth, we should improve the outdated and hideously complex rules that U.S. companies have to deal with when they begin expanding their operations overseas. We should do all we can to help American companies sell their products abroad. Contrary to what some will say, this helps create more and better jobs in the United States.
Finally, we should simplify the tax code to the extent possible.
Like the bill Chairman Thomas is introducing, my legislation is not revenue neutral. I have targeted it to have a net cost of about $200 billion.
Some of you may be wondering if I think I can get another tax cut bill of $200 billion through the Senate. Probably not, but enactment of my entire bill this year is not my primary goal.
I really have three very realistic goals with this legislation. First, I want to highlight the importance of complying with our WTO obligations this year.
Second, I want to expand the options on the table for the Finance Committee when we start putting the bill together this autumn.
Finally, I hope to make the final bill more beneficial to U.S. domestic and U.S.-based multinational companies and their workers. We simply cannot afford to focus on just workers for domestic companies or just on employees of global companies. We need both for our long-term prosperity.
My bill has four major parts. First, it would repeal the FSC/ETI rules, but would give generous transition relief – a 3-year phaseout starting in 2004.
Second, it includes the most comprehensive set of international tax reform provisions ever considered by Congress. It would offer significant relief from double taxation in the context of the foreign tax credit, as well as rationalize the rules governing how U.S. companies structure their global operations.
These changes, which are endorsed by a variety of businesses and associations, would increase our competitiveness and decrease the complexity of the tax rules.
Third, the bill would extend permanently the research credit, which is one of the most important incentives we can offer to keep innovation in this country. This issue is clear. R&D; is vital to a nation’s long-term economic health. If we don’t provide a strong incentive for companies to keep this research here, our trading partners will lure it away.
Finally, my legislation offers strong incentives for companies to invest in new machinery and equipment. Economists tell us that what this recovery lacks is capital spending by business. By building on the incentives we passed in last year’s stimulus bill and this year’s growth bill, we can get capital spending moving again. This will lead to higher productivity and higher wages.
I look forward to seeing these ideas move forward as Congress deals with the problems of replacing the FSC/ETI. And, I certainly look forward to continuing to work with Chairman Thomas and his colleagues on the Ways and Means Committee as well as with Chairman Grassley and Senator Baucus and my colleagues on the Finance Committee.
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A short summary of Hatch's bill follows:
HATCH FSC/ETI REPLACEMENT BILL
“Promote Growth and Jobs in the USA (PRO GROW USA) Act of 2003.”
Outline as of July 25, 2003
Underlying Principles of Hatch Bill:
• As we repeal FSC/ETI, we should replace it with provisions to increase the competitiveness of U.S. companies at home as well as abroad, and to increase productivity growth of the economy;
• Simplify the tax code to the extent possible;
• We should provide generous and fair transition relief
Goal of Hatch Bill:
• To expand the options on the table in the Finance Committee, and make the final product more beneficial to both U.S. domestic and multinational companies.
Outline of Hatch Bill:
Title I – Repeal FSC/ETI with transition and binding contract relief.
Title II – International Tax Reform.
Major provisions include:
Subpart F Provisions
• Repeal foreign base company sales, service, and shipping income rules for transactions with treaty partners or where companies enter into APAs with IRS;
• Allow companies to move funds from one CFC to another while still deferring U.S. tax;
• Permanently extend Subpart F exemption for active financing income;
• Repeal foreign personal holding company rules and foreign investment company rules;
• Expand de minimis rule under subpart F to the lesser of 5% of gross income or $5 million;
• Permanent repatriation provision with 5.25% rate if funds are invested in productive equipment and R&D.;
Foreign Tax Credit Provisions
• Allow worldwide interest expense allocation, with one-time election;
• Allow 20-year carryforward of foreign tax credits, and change ordering from LIFO to FIFO;
• Reduce FTC baskets from 9 to 2 – General and Typically Low Taxed (TyLT) Income;
• Eliminate the AMT haircut;
• Fix the overall domestic loss problem;
• Repeal special foreign oil and gas FTC rules;
• Increase current exemption from FTC limitation from $300 to $500 for individuals (double that for couples) and index for inflation;
• Includes JCT’s international simplification recommendations and Enron report provision;
• Require Treasury to study complexity of the international tax rules and particularly the compliance burden on smaller taxpayers.
Title III – Permanent Extension and Expansion of the Research Credit (Hatch-Baucus bill).
Title IV – Depreciation Reform:
• 100% expensing for equipment and leasehold improvements, through 2006;
• Effectively expands bonus depreciation of 2003 growth bill to 100%;
• Extends Section 179 for one year, through 2006.
• Provision to allow loss companies with AMT credits to receive cash benefit equal to value of increased expensing – provides an incentive for struggling companies to invest.
Anticipated Cost of Bill: Title I would raise $50 to $60 billion. Other titles are expected to cost in the neighborhood of $80 to $85 billion each, for a total net cost of around $200 billion.
Offsets: None besides the repeal of FSC/ETI.
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