September 11,2014

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Hatch: Administration Wrong to Play Politics with Inversions

At U.S. Chamber of Commerce Event, Utah Senator Reiterates Call for Comprehensive Tax Reform, Says Any Stopgap Measure on Inversions Must Meet His Criteria

WASHINGTON – In a speech at the U.S. Chamber of Commerce today, Finance Committee Ranking Member Orrin Hatch (R-Utah) criticized the Obama Administration for attempting to politicize the recent uptick in corporate inversions and called for bipartisan congressional talks to continue.   

Hatch reiterated his support for an overhaul of the tax code and said any stopgap measure to address corporate inversions must meet the four principles he outlined earlier this year. The Hatch criteria would require any proposal to:  1. be revenue neutral; 2. serve as a bridge to comprehensive tax reform; 3. not be retroactive or punitive; and 4. move the tax code toward a territorial tax system. Hatch said these criteria were non-negotiable. 

The complete speech, as prepared for delivery, is below:

Once again, thank you for having me here today. 

I very much appreciate all the U.S. Chamber of Commerce does to advance the interests of the business community.  I know that Tom and Bruce and everyone here at the Chamber is hard at work, trying to help us address the many challenges facing our nation and our economy. 

We need this work to continue, particularly when it comes to fixing our country’s broken tax code.  That’s why I was very pleased last week when I heard about the Chamber’s new ad campaign to promote comprehensive tax reform. 

People need to be educated on just how problematic our tax system really is.  That’s one of the challenges we face as we try to work toward reform.  Needless to say, I appreciate the Chamber’s efforts in this regard.

Sadly, there are many here in Washington that would rather play politics with our nation’s tax code than actually fix it.  They use the tax code as sort of a political shorthand to make claims about who is and who is not paying their fair share, usually as a means of arguing in favor of higher taxes and more wealth redistribution. 

Sure, occasionally these same people will say something about the need for reform, particularly when it comes to the business tax system.  We saw some of that earlier this week with Secretary Lew’s speech that, though it was advertised well in advance, contained very little in terms of new information or real proposals to actually fix our tax code. 

In the end, however, many of my friends on the other side would rather use the tax code to negatively label certain people and businesses than actually fix it.

Case in point, we have the Obama Administration’s recent fixation with corporate tax inversions. 

As more and more companies opt to move their tax domiciles offshore, most reasonable people have concluded that the problem is our tax code.  Indeed, as all of you know, we have the highest corporate tax rate in the industrialized world.  And, we have a system of worldwide taxation that makes us less competitive compared to most foreign tax jurisdictions, which tend to have territorial tax systems.

The President and some in his administration have recently paid lip service to the need to fix our tax code, but that’s usually just a preface for arguments condemning inverting companies and calling for more “economic patriotism.” 

That’s the latest campaign theme from the administration these days: Economic Patriotism. 

It’s this heavy-handed political rhetoric that is unpatriotic, if you ask me.  And, it doesn’t stop there. 

President Obama has called inverting companies “corporate deserters,” saying that they are “leaving the country to get out of paying taxes,” and “renouncing their citizenship.” 

At virtually every turn, the calls for “economic patriotism,” have been tied to support for legislation that would make it more difficult for corporations to invert.  The specific proposals the administration has endorsed are punitive and retroactive.  They are not designed to improve the business climate in the U.S.  Instead, they are intended to build walls around American corporations.  

I have spoken out publicly against this approach several times over the last few months.  

I’ve given speeches on the Senate floor and in the Finance Committee.  I wrote an op-ed for the Washington Post. And, I’ve written letters to the administration outlining the folly of the idea that we can pick a random date on the calendar and then essentially bar any inversion transactions that may take place thereafter.  

The administration’s preferred approach is controversial and stands no real chance of actually being enacted.  

Yet, the President and some of his allies in Congress have deemed support for this approach to be the very definition of “economic patriotism,” believing that they can paint anyone who opposes their ideas – presumably most Republicans – as un-American boogeymen who support corporate inversions. 

Rather than pointing fingers at American businesses or Republicans in Congress, the President and his administration should, instead, look at their own policies and decide whether they can honestly say they’ve acted with “economic patriotism.”  

Our nation faces a number of challenges.  Yet, what has the President done to address them? 

We have Obamacare, which inflicts new costs on American businesses and taxpayers and does nothing to actually lower the cost of health care in the U.S. 

We had Dodd-Frank, which imposed all kinds of new rules and regulations on the financial sector, but did nothing to fix the actual causes and key problems of the most recent financial crisis. 

And, we’ve seen a huge expansion of the regulatory state, on issues ranging from energy to labor, that threatens to dramatically increase costs on U.S. businesses, consumers, and taxpayers. 

All this, and they wonder why more and more American companies are opting to do business elsewhere and why new companies don’t want to locate here in the first place. 

Once again, in the midst of all this rhetoric about corporate inversions, the President and others in his administration have paid lip service to the need for corporate tax reform.  

But, let’s be honest, President Obama has been in office for nearly six years now.  

And, throughout that time, leaders in Congress, the business community, and elsewhere have been clamoring for tax reform.  Some have even gone so far as to put out their own tax reform proposals, all of which were met with either silence or derision from the Obama Administration.  

Sure, we’ve seen vague bullet-points or broad principles from the White House on this issue.  But, we’ve seen nothing in terms of real leadership or concrete proposals from President Obama on tax reform.  

Yet, despite this lack of action, and, despite the continued stream of anti-business policies and rhetoric coming out of this administration, the President has the gall to question the patriotism of American companies for their practices and investments. 

It’s truly a strange time to be in Washington.            

I remember numerous instances in which my friends on the other side bristled at the very notion that their patriotism might be in question, even when it wasn’t.  

For example, there have been times when people simply questioned Democrats’ judgment on issues like national security, and their kneejerk response was to claim that arguments about patriotism were out of bounds. 

Apparently, they see things a little differently these days.  

Now, they feel free to openly and plainly question people’s patriotism, so long as they qualify it as being “economic” and only do so during election years. 

My point is not that these types of arguments and attacks should be considered out of bounds.  Indeed, as the old saying goes, politics ain’t beanbag. 

Instead, my point is that the Democrats know full well how loaded and heated political attacks on patriotism can become.  They know that, by condemning certain businesses as being insufficiently patriotic, they are inviting public scorn and derision on those businesses. 

The problem is not that my friends on the other side are unaware that this is the case.  The problem is that they don’t care. Indeed, they are apparently more than happy to stoke the public fires against American businesses if it will help them in an election year.  

As the revered jurist Learned Hand wrote, “Anyone may so arrange his affairs that his taxes will be as low as possible; he is not bound to choose that pattern which best pays the Treasury; there is not even a patriotic duty to increase one’s taxes.” 

Even the President’s own unpaid economic advisor, Warren Buffett, recently noted that there’s no business obligation to maximize one’s tax bill, saying of his tax bills that “We don’t add a tip…and we do certain transactions that are tax-driven.” 

These quotes and others like them have been cited a lot lately, and for good reason: They demonstrate the absurdity of trying to draw connections between the taxes a person or company pays and their patriotism.  

Of course, absurdity has never been a bar to election-year politicking, and this year is no exception. 

This is not to say that corporate inversions are not a problem.  They are, and I’ve said as much on numerous occasions.  

Inversions happen for a number of reasons.  Companies will choose to leave to get a lower tax rate, to escape our worldwide tax system in favor of a territorial system, to engage in earnings stripping, or to unlock cash that is currently held by a foreign subsidiary.  

These types of transactions leave the U.S. with a smaller tax base that results in billions of dollars in lost revenue. This is a serious problem that deserves serious consideration.  But, as we’ve seen, that’s not what we’re getting from most on the other side.  

Virtually everyone agrees that the solution to this problem is to fix our broken tax system.  I know that’s what the folks here at the Chamber believe.   

We need a tax system that encourages economic growth.

We need a tax system that allows American companies to compete in the global marketplace.  

We need a tax system that is fair and simplified. 

And, we need a tax system that encourages saving and investment.  

These are the principles that guide me as we continue on the long path toward comprehensive tax reform.  This type of reform will be the only real and lasting solution to the problems surrounding corporate inversions.  

In the meantime, if we’re serious about addressing corporate inversions, there may be temporary steps Congress can take to address this problem.  Of course, any workable solution in this area will have to be bipartisan.  And, in my view, it will have to have four key features.

First, it is absolutely essential that any interim proposal to address corporate inversions be a bridge to comprehensive tax reform.  Everyone at least nominally agrees that tax reform should be our long-term goal.  That being the case, we should not do anything in the meantime that makes it more difficult to achieve that objective. 

Second, any workable plan to address inversions should not be retroactive.  Retroactive proposals – like the ones we’ve seen thus far – are unnecessarily punitive and would punish companies for taking actions that were perfectly legal at the time they were taken.  

Third, the approach should move us closer to, or at least not further away from, a territorial tax system where companies are taxed only on the income they earn within the U.S.  Our current system of worldwide taxation is one of the biggest reasons companies are choosing to invert.  

One of the major goals of comprehensive reform should be to fundamentally change this system and anything we do in the interim should move us further down that path. 

Finally, any workable proposal to address inversions should be revenue neutral.  I know there is an insatiable desire among some on the other side to want to scour the tax code in search of new revenues to pay for more spending.  We need to avoid that temptation.  

Now, with these four principles, I know I’ve set a pretty high bar for any potential approach for dealing with inversions.  That’s not by accident.  

Like I said, this is serious stuff we’re talking about.  These problems cannot be solved by political whims and talking points, which, quite honestly, is mostly what we’ve been seeing in this discussion. 

So far, a number of proposals have been thrown out there purportedly to address the problem of inversions.  

There’s the proposal from the President’s budget, which closely resembles the Levin proposal.

And, more recently, there’s the Schumer proposal related to earnings stripping.  

It appears that none of these proposals come close to meeting these four essential criteria. 

For the most part, I think these proposals are driven more by the politics of the moment than by any real desire to improve America’s tax climate. 

Indeed, there some people who seem far more interested in boycotting certain fast food chains than they are in working to actually address this challenge.  

If Congress is to act, I want it to act to make law.  The criteria I’ve outlined are not simply straw men sent out to be knocked down in the political ruckus.  I believe that, if Congress wants to act on inversions, these criteria present us the best path to a real stopgap measure that can be in place until we are able to finally fix our broken tax code once and for all.  

We’re also hearing rumors about steps the administration may take on its own.  However, until they finally decide to inform the American people of their plans, it’s difficult to comment on them.  

I have a long history of working with members of both parties.  I’m willing to work with anyone – Republican or Democrat – to fix our nation’s tax code and to help American businesses compete.  

We can solve these problems.  But, whether we’re talking about the long-term goal of tax reform or any shorter-term effort to discourage inversions, we have to set politics aside and work together.  

As the Ranking Member of the Senate’s tax-writing committee, I’m willing to entertain ideas designed to address the issue of inversions. 

Chairman Wyden and I have engaged our staffs to discuss a potential bipartisan stopgap measure.  I am hopeful that the discussions will lead to a bipartisan bill that will satisfy my four principles.   

But, let me be clear: These principles that I’ve laid out are non-negotiable.  I will not sign onto any legislation that fails to meet these high standards. 

Now, I know that corporate inversions are the hot tax topic of the day.  Still, I know there are other tax issues that have people in this room concerned, most notably the status of business tax extenders. 

Anyone who’s paid attention to the saga surrounding the 2014 tax extenders package knows my position.  I am committed to seeing it pass, as are virtually all Republicans in the Senate.

Unfortunately, as with the debate over corporate inversions, the tax extenders have been pulled into election-year politics and gamesmanship. 

A few months ago, the Senate Democratic majority brought the extenders bill to the floor and tried to force it through without any consideration of any amendments – neither Republican nor Democratic amendments. 

As the saying goes, that’s a dog that just won’t hunt.

The Senate Democratic Leadership, so desperate to protect their members from anything resembling a difficult vote, has turned the Senate into an amendment-free-zone.

The current Senate Majority Leader has acted to block amendments on 87 separate occasions – more than twice as many times as the previous six majority leaders combined. 

Over the past year, the Senate has voted on only 11 Republican amendments.  During that same time frame, Democrats in the House of Representatives – where the majority typically enjoys much greater control over the debate – have received votes on 176 amendments. 

Senate Republicans are – for good reason, in my view – fed up.

So, we voted against cloture on the tax extenders bill, effectively delaying a final vote on the measure because weren’t allowed to offer any amendments.  This was a particularly difficult vote for me as I had worked closely with Chairman Wyden to put the tax extenders package together in a bipartisan fashion.   

But, in the end, I believe it is essential that the Senate minority stand up for the traditions and practices of the Senate, even if they aren’t so important to those in the majority. 

At this time, the tax extenders package remains somewhat in limbo.  We’ve made it clear to the Senate Democratic Leadership that we are more than willing to bring up and pass the extenders bill as soon as they agree to a fair and open amendment process.

Of course, with just a few legislative days left until the Senate recesses before the elections, it’s very unlikely that the extenders bill will pass before Election Day.

But, make no mistake, Republicans want to pass this legislation.  We know how important these extenders are to the business community.  We’re going to get it done.  I’m confident that it will pass, likely during the lame duck session after the midterms. 

With that, I just want to thank the Chamber once again for having me here this morning.  It has been a pleasure to be here with all of you today.

Once again, we have a number of challenges that we have to address.  Those challenges pervade our tax code and extend elsewhere.  Working together, I know we can do great things for this country.

Thank you all for coming today.  God bless you all.