Washington, D.C. – U.S. Senator Rob Portman (R-Ohio) released the following statement on today’s announcement of the bipartisan agreement on detailed principles for international tax reform. Portman, along with U.S. Senator Charles E. Schumer (D-New York), chairs the Senate Finance Committee working group on international tax reform and presented a proposal to address a number of international tax reforms including transitioning to a hybrid, territorial-like system, patent boxes, base erosion, deemed repatriation, and other major areas. The bipartisan agreement draws from elements included in prior international reform efforts by members of both political parties.

“We need comprehensive tax reform because the American people deserve a simpler tax code that will give our economy a needed shot in the arm. Our complex, burdensome, and outdated tax system is standing in the way of more jobs and opportunity, and higher wages.

“Although we need comprehensive reform, our report clearly demonstrates the urgency of addressing the international tax system, and how the right kind of international reform can be a step in the right direction for more comprehensive reform.  The bipartisan international tax reform framework released today by Senator Schumer and me shows that our system of international taxation is woefully out-of-date.  It has been 50 years since the U.S. has substantially updated its international tax laws, and by standing still, the U.S. has fallen behind.  This report uncovers three truths about international tax reform: first, the marketplace is becoming more international, with 80 percent of global purchasing power currently residing outside of the U.S.; second, U.S. workers benefit when the businesses they work for can compete and win in those markets - winning abroad means more jobs and higher wages here at home; third, the U.S. is falling behind in those markets.  Our report shows a bipartisan framework for how we can update our international tax code, giving U.S. companies the tools they need to compete and win on a level playing field with their international competitors, leading to more jobs and higher wages here at home.

“Even though we have completed our report, it is certainly not perfect, and today is the beginning of a process, not the end.  I will continue to talk to Ohio workers, families, and businesses to get more good ideas on how to achieve the best possible result for Ohio's hard-working taxpayers.”

A link to the summary can be found here. The full report is attached, and the foreword appears below:

 

FOREWORD BY THE CO-CHAIRS

Over the past few months, the working group has examined every aspect of the international tax code in an attempt to find ways to fix a system that is clearly broken.  Our current system of international taxation was put into place during the Kennedy Administration and reflects the realities of a different era.  By standing still, the United States has fallen behind other countries that have adopted modern international tax rules to help their companies and workers compete in the global marketplace. 

As the Business Roundtable pointed out in their submission to the working group, “[n]ew technologies, emerging economies and falling trade barriers have significantly increased global cross-border investment and trade over this period, while increasing economic competition.”  And the numbers bear this out.  In 1982, U.S. multinational companies earned only about 23 percent of their income from outside the United States.  In 2012, 54 percent of the income of U.S. multinational companies was earned outside the United States. 

When U.S. businesses can compete and win in this growing market, the real winners are U.S. workers.  A 2009 study on the domestic effects of the foreign activities of US companies found that every 100 jobs added abroad by U.S. multinational companies resulted in an average increase of 124 jobs added in the United States. A March 2015 report by Ernst & Young found that for each dollar of additional wages paid in U.S. foreign affiliates, U.S. wages increased by $1.84. Further, the report found that each dollar of foreign investment by U.S. multinational companies led to $3.50 of additional investment here at home.  

Unfortunately, as the importance of success in foreign markets has grown, the United States has become less competitive abroad because of its worldwide system of international taxation.  In 1989, only 10 OECD member countries had territorial tax systems and just two of the G-7 countries had such a system. Today, 28 OECD countries and every other G-7 country has adopted some form of territorial system-- and all of these countries have lower corporate tax rates than the United States.  This means that no matter what jurisdiction a U.S. multinational company is competing in, they are competing at a disadvantage.  The National Association of Manufacturers may have said it best in their submission: “[i]f American companies cannot compete abroad, where 95 percent of the world’s consumers are located, the U.S. economy suffers from the loss of both foreign markets and domestic jobs that support foreign operations.”

Like any major tax reform, fixing the international tax code won’t be easy, but it will be essential if we want U.S. businesses and their workers to be able to compete and win in an increasingly global economy.  While we are still working with the staff of the Joint Committee on Taxation on the specifics of an international tax reform proposal, we believe that the framework below represents what a bipartisan proposal should look like.  While not within the jurisdiction of the international working group, there is no doubt that the policies below work best with a substantial corporate tax rate reduction and broader tax reform for all businesses. 

We would like to thank the members of the International Tax Reform Working Group: Senator Pat Roberts (R-KS), Senator Sherrod Brown (D-OH), Senator Michael Enzi (R-WY), Senator Tom Carper (D-DE), Senator John Cornyn (R-TX), and Senator Mark Warner (D-VA); as well as their staffs and the professional staff of Chairman Orrin Hatch (R-UT) and Ranking Member Ron Wyden (D-OR).  Their participation and engagement is a large part of what made the working group process successful; however, it should be noted their participation does not imply agreement with all of the details of the framework outlined below.  We would also especially like to thank Tom Barthold and his staff at the Joint Committee on Taxation for their countless hours spent with Senators and staff discussing the technical details involved in various international tax reform measures, and for their assistance in the preparation of this report.  Finally, we would like to thank the stakeholders who took the time to be engaged in the process.  Their continued participation and input will be vital in moving this process forward.