HEADLINE: HEARING OF THE HOUSE WAYS AND MEANS COMMITTEE
SUBJECT: THE PRESIDENT'S BUDGET PROPOSALS FOR FISCAL YEAR 2005
CHAIRED BY: REPRESENTATIVE WILLIAM M. THOMAS (R-CA)
LOCATION: 1100 LONGWORTH HOUSE OFFICE BUILDING, WASHINGTON, D.C.
JOHN W. SNOW, SECRETARY, DEPARTMENT OF THE TREASURY
REP. WILLIAM M. THOMAS (R-CA): Good afternoon. Today begins our first in a series of hearings to examine President George W. Bush's proposed budget for Fiscal Year 2005. We are honored to have Secretary John Snow of the U.S. Treasury Department to join us today. Welcome. We look forward to hearing your testimony.
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REP. KENNY C. HULSHOF (R-MO): Thank you, Mr. Chairman.
Mr. Secretary, welcome. It's great to have you again. I think a couple of points need to be underscored and then I'd like to ask a couple of questions. I think it is beyond dispute that as President Bush was being sworn into office, the economy had begun a slowdown. That recession that our economy experienced has turned into a recovery. You've rattled off a number of areas, in fact, where the economy is improving. In fact, in today's Wall Street Journal the manufacturing index once again showed improvement, which is great news, especially in light of some of the political discussions that we've had here on Capitol Hill.
What I want to talk about-in fact, what I've queried to some of my colleagues is that even with the economy improving, the one thing that could pull the rug out from underneath the economy that is imminent, that will occur unless Congress acts, is dealing with the foreign sales corporation and extraterritorial income problem. We know that that's imminent because of what the European Union has indicated as a deadline, and I wanted to follow up on some of the comments you made earlier, because I think you stated, if I'm-and correct me if I misstate your position, that the administration, rather than just a repeal of the foreign sales corporation/extraterritorial income, the administration would support some reform along with that repeal. Is that a fair assessment?
MR. SNOW: Yes, we-absolutely. We want to make sure that in the process of repeal, nothing is done that prejudices the competitive position and hopefully improves the competitive position of U.S. global enterprises.
REP. HULSHOF: Well, and thank you for that. Because, again, to my friend, Mr. Neal-and I know that he's been very passionate about this issue on corporate inversions, and we share that. And there certainly is a difference in my mind with a company that sets up 2,100 post office boxes in another country for the sole purpose of trying to avoid its tax liability, that is completely different than a board of directors answering to shareholders making a legitimate business decision to move its corporate headquarters off of our shore into some other country because, you know, something again that needs to be underscored to the American taxpaying public is the fact that our Tax Code places our American companies at a disadvantage.
You know, we've had hearings in this great hall in other settings where-or other locations where Daimler Chrysler is just that, Daimler Chrysler and a German company because, in part, the disadvantage that our tax laws put them and their legitimate business decision to move to Stuttgart. So along with that reform, what are the areas specifically that the administration would point us to as most needing reform.
MR. SNOW: Well, there are several things that would come to mind. One would be the uneconomic limitations on the use of foreign tax credits. That's an area I think deserves to be looked at. I'd also look at rules that have the effect of increasing the cost of U.S. companies marketing U.S. produced products abroad, or providing services abroad to foreign customers. These would be top of the mine sort of things.
And I think-I do want to go back to a point you made. It's not the administration's view that every time a company goes offshore that that's an abusive tax shelter. Clearly that's not the case. Sometimes companies go offshore because of the effects of our own Tax Code on them, vis-vis the tax regime of competitors they have, and the critical thing is every business has to remain competitive. So I take your point very much.
REP. HULSHOF: This committee-and my time is short. I'll try to get this last question out before the gavel comes down. This committee worked on a tax bill before that had corporate tax rate reductions. I know there are some-again, there is some dispute here on this side of the dais about whether that should be specifically for manufacturing. And then, of course, we've got this definition of what is manufacturing, or whether it should be more broad-based. Again, what view does the administration have about the tax rates for corporate?
MR. SNOW: Well, I think-I keep getting too close to that, I'm sorry. There's a case to be made for going down that route, to help make American companies more competitive. I think the case is much better if it's done across the board, rather than targeted on particular industries. One problem with targeting particular industries is you're likely to find that a lot of people who weren't in those industries all of a sudden become new entrants, for purposes of the Tax Code.
REP. THOMAS: The gentleman's time has expired.
REP. HULSHOF: Thank you, Mr. Chairman.