Copyright 2000 Federal News Service, Inc.
Federal News Service
April 12, 2000, Wednesday
SECTION: PREPARED TESTIMONY
LENGTH: 1228 words
HEADLINE:
PREPARED TESTIMONY OF JAMES E. ROSE, JR. SENIOR VICE PRESIDENT, TAXES AND
GOVERNMENT AFFAIRS TUPPERWARE CORPORATION ON BEHALF OF THE NATIONAL ASSOCIATION
OF MANUFACTURERS
BEFORE THE HOUSE COMMITTEE ON
WAYS AND MEANS
BODY:
Mr. Chairman and members
of the Committee, I am very pleased to have the opportunity to testify today on
fundamental reform of the federal tax laws. My name is James Rose and I am
senior vice president for Taxes and Government Affairs at Tupperware
Corporation. I also serve as a board member of the National Association of
Manufacturers (NAM) and chair its Tax & Budget Policy Committee.
I
am testifying today on behalf of the NAM - "18 million people who make things in
America." The NAM is the nation's largest and oldest multi-industry trade
association, representing 14,000 members (including 10,000 small and mid-sized
companies) and 350 member associations serving manufacturers and employees in
every industrial sector and all 50 states. Headquartered in Washington, D.C.,
the NAM has 10 additional offices across the country. The NAM has long supported
fundamental tax reform, reflecting our belief that the current tax system is a
major obstacle to realizing the full potential of our economy. The solution
calls for a new tax system that is simpler and encourages, rather than
penalizes, work, investment and entrepreneurial activity, and importantly, a tax
system that is competitive with our foreign trading partners. Specific changes
endorsed by the NAM include incentives for savings and capital formation; a
single tax system for businesses, with no additional components like the
alternative minimum tax and no net tax increase on businesses; elimination of
the double taxation of corporate earnings; and fair and equitable transition
rules.
Moreover, our members generally favor a system in which only
income earned within the United States is taxed within the United States. This
is commonly referred to as a territorial tax system. However, as increasing
globalization of the economy often makes it difficult to determine the point
where income is "earned," any restructuring proposal should embody simple
sourcing rules. Importantly, such a proposal should also encourage U.S.
activities, including R&D and headquarters functions.
These
priorities reflect the significant challenges U.S. manufacturers face in the
world economy in which they must compete to survive. U.S. manufacturers enjoy
many advantages including a stable social and political environment and a
creative and energetic workforce. Nonetheless, U.S. manufacturers are at a
significant disadvantage in the highly competitive world economy. In particular,
the cost of borrowing in the United States often is higher than that of other
countries. This differential reflects the remarkably low U.S. savings rate, as
compared to that of other countries. A higher cost of borrowing, when combined
with relatively slow tax depreciation schedules, results in a less attractive
recovery of U.S. invested capital. Over time, this will result in a less
competitive U.S. asset base and ultimately a loss of U.S. jobs.
Other
signs of an uneven playing field have emerged, including a negative trade
balance that continues to increase. The NAM is a staunch advocate of open trade
and is not looking for protective trade barriers. What is needed, however, is a
U.S. tax system that is competitive with those of our major trading partners.
The need for a new system has been heightened even more in recent months with
the World Trade Organization's finding that foreign sales corporations
constitute an illegal export subsidy.
Let me give you an example of how
U.S. exporters are at a disadvantage in the global market. The tax burden on a
foreign product often consists mainly of a combination of
income tax and a Value Added Tax (VAT). A
foreign exporting company that manufactures products in Country
A typically receives a rebate of the 15 percent VAT when its goods are exported.
The tax burden of a U.S. product consists mainly of income tax. An exporting NAM
member (and around 80 percent do export) receives no tax rebate when its
products are exported from the United States but finds that these products are
subject to a 15 percent VAT when they are imported into Country A. In some
cases, the 15 percent tax on the value of the goods may actually exceed the
normal profit margin of the item. As the United States does not use a VAT and
therefore does not impose such on imported goods, domestically produced goods
that are exported sustain the full effect of the U.S. tax burden plus the VAT of
Country A, while imported products sustain only a portion of this heavy tax
burden. This has the effect of significantly favoring foreign products within
the United States and discouraging U.S. exports.
The story gets worse.
Foreign companies competing with U.S. manufacturers often operate within a
territorial tax system that does not tax
foreign source income. Accordingly, the territorial
systems of our competitors can essentially eliminate the home country income tax
burden on export sales. The U.S. tax system subjects foreign earnings of U.S.
companies to U.S. taxation when this money comes hack to the United States and
in certain other circumstances. The federal tax code does include a foreign tax
credit system to reduce this burden. However, too often the very complicated
foreign tax credit rules result in incremental U.S. taxation when these funds
are returned to the United States. In this environment, U.S. companies are
inevitably discouraged from investing in the United States.
The U.S.
worldwide tax system is having another impact on our economy. Increasingly, U.S
companies, often large and well known, are being acquired by foreign
corporations. Last year a representative from a well-known NAM member company
testified before this Committee that the U.S. tax system was an important factor
in why their U.S. company was acquired by its German-based merger partner. Among
other factors, the German-based acquirer benefited from Germany's territorial
tax system.
This scenario has been repeated at an alarming rate in
recent years. For example, a recent study covering 1998 acquisitions involving
U.S. and foreign entities concluded that approximately 85 percent of the
combined value of the acquisitions resulted from foreign entities acquiring U.S.
entities. Why should we be concerned? One reason is the loss of American jobs.
After an acquisition or merger, the headquarters of the acquiring party
typically survives and expands, while the headquarters of the acquired entity
often is reduced in size, and sometimes eliminated, effectively moving jobs
off-shore. As part of this restructuring, R&D facilities and even plant
locations can be affected by these decisions.
In summary, American
companies have the well-trained employees, the products, and the technology to
win in the global marketplace, but the U.S. tax code has stacked the deck
against us and in favor of our foreign competitors - here at home as well as
abroad.
The NAM is pleased to participate in the dialogue over
restructuring the U.S. tax code and applauds Congressional efforts to
fundamentally rewrite the tax code. At this point in the debate, the NAM has not
endorsed any specific proposal. However, we welcome the opportunity to work with
you to develop a new tax system that is simpler and encourages - not penalizes
work, investment and entrepreneurial activity and one that is competitive with
the tax systems of our foreign trading partners.
Thank you.
END
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