House Republicans promise overhaul of business tax code
Friday, June 28th 2002, 12:00 am
By: News On 6
WASHINGTON (AP) _ House Republicans said Friday they plan to change the corporate tax system to make American companies more competitive, stop the flight to offshore tax havens and reduce the use of abusive tax shelters.
Democrats, while agreeing the tax code needs changing, said the more urgent task was legislation targeted specifically at companies that relocate to Bermuda and other countries to avoid U.S. taxes.
The arcane debate over the tax system has taken on election-year political significance as Democrats seek to link Republicans to the recent spate of corporate scandals that have compromised the incomes and livelihoods of a broad spectrum of Americans.
House Ways and Means Committee Chairman Bill Thomas, R-Calif., told a news conference that the House could vote by the end of July on a tax package that would remove competitive disadvantages for U.S. companies, bring the United States into compliance with international trade laws and eliminate incentives for reincorporating overseas.
The top Democrat on that tax-writing committee, Rep. Charles Rangel of New York, quickly criticized Thomas for not consulting with him about the package.
``The Thomas proposal merely muddies the water and shows our disarray to the international community,'' Rangel said in a statement.
In an outline of the package, Thomas said he would deal with such relocating, known as ``corporate inversions,'' by such steps as taxing companies that transfer assets overseas and cracking down on ``earnings strippings'' where companies make interest payments to a new foreign parent company, and uses these payments to offset their taxable income in the United States.
Thomas said he would impose excise taxes on the stock options of officers and other corporate insiders at the time of a relocation to equalize treatment with common shareholders. In total, there would be more than 20 changes in the tax code related to companies competing in the global market, including simplifying foreign tax credit rules designed to prevent double taxation, Thomas said.
One purpose would be to change U.S. tax law judged by the World Trade Organization to be an illegal subsidy, leading to European Union threats to impose up to $4 billion in penalties on U.S. products. The current law allows U.S. companies with a foreign presence to exempt between 15 percent and 30 percent of their export income from U.S. taxes.
EU officials have indicated they would hold off retaliatory action as long as Congress was working on legislation to change the law.
Thomas said his bill would address the problem of abusive tax shelters by requiring more transparency and imposing stiffer penalties on those who use and promote such shelters.
But House Democrats, speaking before the Thomas news conference, said that since taking control of the House in 1995, Republicans had not lived up to their promises to simplify and improve the U.S. tax system.
More pressing, they said, was stopping the flight of corporations abroad, which House Minority Leader Dick Gephardt, D-Mo., called ``one of the most glaring, unpatriotic examples of corporate malfeasance.''
Rep. Richard Neal, D-Mass., said companies are paying $27,000 for a postal box in Bermuda to avoid $40 million in U.S. taxes. Ingersoll-Rand, Inc., Tyco International, Cooper Industries and Stanley Works are among high-profile firms that have reincorporated in Bermuda or announced plans to do so. Tyco recently became involved in scandal as its chief executive, Dennis Kozlowski, was charged with evading payment of more than $1 million in sales tax on paintings by Monet, Renoir and others.
Neal and Rep. Jim Maloney, D-Conn., last March introduced a bill that would require companies to continue paying U.S. taxes after they reincorporate abroad if their stock remains substantially in the hands of former stockholders. Their news conference Friday announced plans to collect lawmaker signatures to force a House vote on their measure.
Maloney faces a fellow incumbent, Republican Rep. Nancy Johnson, this November in a newly drawn district in Connecticut that includes Stanley Works. The toolmaker's future has become a major political issue in their campaign. Johnson has proposed a moratorium on corporate relocations to allow time to rewrite tax laws, an approach also supported by the Bush administration.
Neal and Maloney said their bill would save American taxpayers $4 billion over 10 years.
Thomas said his package could affect some $75 billion to $100 billion in revenues over 10 years, but would be essentially revenue neutral.