Levin: Opening Statement at Hearing on International Corporate Tax Reform

In this committee's last hearing on tax reform two weeks ago, we heard testimony from U.S.-based multinational corporations regarding what they believe corporate tax reform should look like.  Their testimony illustrated the importance, complexity, and controversial nature of these issues.

They indicated that they would prefer sharply lower rates and a territorial system.  At the same time, they rejected the notion of a one-time repatriation holiday, acknowledged the need for reform to be at least revenue neutral, and suggested that the United States consider a value added tax to make up the revenue that would be lost by cutting corporate taxes. 

The testimony from the last hearing bears on today's hearing because U.S. multinational corporations often describe their desire for a "European-style" territorial system, or a tax system that is "similar to that of our major trading partners."  Today, I hope we will continue to explore exactly what such statements mean.

If we are going to compare our tax system to our trading partners, it is appropriate to consider the broader context of their corporate tax systems.   To say simply that we want to adopt certain territorial features and low statutory rates offered by other countries' tax systems is somewhat like going out to shop for a car and saying, "I'd like to have a Corvette engine" without worrying about anything else.  That engine comes with a number of tradeoffs; in the case of a Corvette, when you get that engine, you know not to expect wonderful gas mileage, four doors, room for children, and low-cost insurance.  You know that having that powerful V-8 will mean compromising on some other things.  These compromises and tradeoffs may not be appropriate for everyone.

As we consider the corporate tax systems of other countries, it is important that we pay close attention to the compromises and tradeoffs that they entail.  What kinds of anti-abuse rules did countries with territorial systems have to adopt to stem erosion of their corporate tax base?  What do choices about a corporate tax system mean for other countries' individual tax systems and the necessity of finding other revenue sources such as value added taxes?

What is the broader economic context in which these choices were made?  How much do these other countries invest in economic fundamentals such as education and infrastructure?    How does their revenue collection relate to these important investments?

Last, but perhaps most important, we should consider the basic differences between our economy and the economies of our trading partners.  Our European trading partners, for instance, operate under European Union rules that constrain their options for corporate taxation.  It is also the case that the United States remains the largest economy in the world, and we remain the world leader in innovation.  How much do we need to follow in the international tax arena?  How much do we need to lead?

With these questions in mind, my Democratic colleagues and I look forward to hearing the witnesses' testimony.

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