Sen. Hutchison: Federal Government Must Get Out of the Way of American Innovation
Hutchison Calls for Lower Taxes & End to Unnecessary Regulations in Remarks at Telecommunications Industry Association Policy Summit
U.S. Senator Kay Bailey Hutchison (R-Texas), Ranking Member on the Senate Committee on Commerce, Science, and Transportation, today gave the keynote policy speech at the Telecommunications Industry Association's Policy Summit in Grapevine, Texas. She discussed federal policies that are disadvantaging high-tech industries and her prescriptions for strengthening American competitiveness and innovation. She also discussed legislative efforts related to broadband and wireless technologies.
Remarks As Delivered
Telecommunications Industry Association Policy Summit
May 20, 2011
I am so pleased to be here with you today, and I appreciate TIA for bringing together industry leaders to focus on the future of innovation and how telecommunications will help to shape it. I am sure that you have noticed during your stay here in Grapevine that Texans are friendly folks. We like visitors, and we like those who want to do business in our state.
Texas has no income tax, it offers a limited regulatory burden, access to highly qualified STEM graduates, tort reform that has lowered litigation costs, and right to work laws. In short, we like business. In fact, Chief Executive Magazine just conducted a survey of 500 CEOs, and they voted Texas the best state for business - for the seventh year in a row. If only the federal government would replicate the business-friendly climate that we have in Texas.
Unfortunately, and as you are painfully aware, that has not been the case. In fact, sometimes when I'm listening to debate on the floor of the Senate -it is clear that some of my colleagues just believe business is bad - it is the enemy. In their world, plaintiffs' lawyers seem to be the only employers who count.
There is no question that members of the information and communication technology industry have the ingenuity to develop and deliver communication innovations for the 21st century. But, many of you are forced to confront the reality that, today, the federal government is disadvantaging industry with an environment that is increasingly hostile to America's innovators. The extraordinarily high corporate tax rate, uncertainty about the continued availability of the R&D tax credit, rising labor costs, the difficulty of hiring skilled workers, and new and exotic regulations are all conspiring against the ability of many sectors - including telecommunications - to compete against countries that do not burden industry with this type of environment.
Foreign manufacturers, like those in China, are able to produce sophisticated equipment at lower costs because of government subsidies, loose regulatory requirements, and uninterrupted access to cheap labor. Nations around the globe are pouring money into their R&D systems with the hope of attracting our scientists and surpassing our nation in cutting edge technologies.
This news sounds bleak, but despite these competitive pressures, during the next decade, U.S. demand for scientists and engineers is expected to increase at four times the rate of all other occupations. In fact, the pace of economic growth may very well depend on how well our nation can meet the demands of the global marketplace for highly skilled researchers and advanced products.
I'll give you a Texas example. Several years ago, Texas Instruments (TI), which is headquartered nearby in Dallas, was trying to decide whether to build a new semi-conductor chip fabrication plant in the United States. Not, where in the United States, mind you - whether. Can you imagine that in this kind of a time, that we wouldn't be doing everything to welcome our businesses to build in America? But, these are the kinds of decisions American businesses face in today's environment. So TI was looking at costs to build around the world, and they found it was cheaper to build in several other places. But, they wanted to build in the Dallas area. The company is committed to developing a unified infrastructure in Texas, producing a skilled workforce of researchers, scientists, and engineers. They did build here - and they opened the doors of a 1 million square foot facility in 2009. They were helped in this effort by the repatriation tax holiday, that allowed them to bring overseas earnings back to the States to offset the costs to build here.
In today's environment, it might not be possible. Unfortunately, we may not see many more companies making this choice unless we do something dramatic to lower the costs to build, innovate, and do business in America.
What are the necessary steps?
First, we need to reform our tax system to incentivize innovation and investment in America. The United States once led the way in developing pro-growth and pro-innovation policies. We were the first in the world to offer companies an R&D tax credit and the first to allow universities to patent products originating from federal R&D funds. However, other countries have now caught up, and in many cases, they have surpassed our effort. In fact, the U.S. R&D tax credit is only incremental; more aggressive countries have gone to a flat tax credit for all R&D expenditures. Ambitious countries have shrewdly adopted the best American practices that spurred technology innovations. And, while other nations adopt and advance our earlier strategies, we have taken a step backward - we haven't even made our R&D tax credit permanent, even though many of us have tried to do this, time, and time, and time again.
That is bad enough, but as you well know, we also impose one of the steepest corporate tax rates in the world - 35 percent. Only Japan surpasses us, but Japan is now looking to lower their corporate tax rate, which would give America the dubious honor of having the highest one in the world. Lowering the corporate tax rate would be a substantial part of any long-term tax reform for the innovation and support of our technology community.
Nationally, we must educate more of our students and inspire them to pursue the STEM courses in science, technology, engineering, and math. We need to work with our nation's trade schools as well, community colleges, technical institutions to bolster the foundation of America's 21st century workforce. Now everyone has to have that college education to have a really good paying and highly skilled job. Last December, the United States Congress was able to do something that was a significant achievement. We passed the reauthorization of the America COMPETES Act.
The legislation prioritizes education, quality education, quality teaching in science, technology, and math for our future innovators; Groundbreaking research into new frontiers; out of the box technologies are also part of the new America COMPETES Act; Technology transfer from our national labs to agencies to the private sector, another priority.
If we want to do the last part of the reform that will innovate and help our manufacturers, we must work to open our markets. We have free trade agreements now pending, and they've been pending quite a while, with Korea, Panama, and Colombia. We need to push those through right away and look for other areas that we can have free trade agreements with, so that we can have more markets for our goods.
And finally, if we are going to really open our country to the innovation that we've always known in the past, we must look at the regulatory environment. If American businesses are going to live up to their vast capabilities, we have got to eliminate the heavy hand of federal government. The federal government continues to find new and inventive ways to impose regulatory requirements on our businesses.
In my role as Ranking Member of the Senate Commerce Committee, there are a few simple questions I ask myself when I'm looking at a bill that comes in and authorizes more regulatory burden. Is there a need for regulation? Could the concerns that have arisen be worked out through market activity? Those are the two questions that must be answered. If not, then it is just another gratuitous power grab by the federal government that is attempting to substitute its judgment for the marketplace and consumers.
I believe net neutrality is a prime example of misguided regulatory intervention.
I was extremely disappointed when the FCC finally took the last step to grant itself regulatory power over all forms of communication. Over the past 20 years, the Internet has grown and flourished without burdensome regulations imposed by Washington. With the strength of free-market forces behind it, the Internet has been an open platform for innovation; it has spurred business development and job creation. What about that needs to be fixed?
The FCC issued its ruling without demonstrating that intervention is necessary. In fact, hundreds of thousands of pages of comments from dozens of interested parties came in after the regulation was put out. The agency was able to produce only three paragraphs - total - in order to give examples of alleged conduct by service providers that raised concerns about how network activities are managed. It is worth noting that in each of these instances, public pressure and the threat of competition corrected those actions. That is what the marketplace is supposed to do.
Net neutrality began as a political movement by progressives to vilify successful technology companies for being too big or too successful. Make no mistake, this is regulation for the sake of regulation, and the consequences will be costly. When service providers are fined for so-called "discrimination," the costs will be passed on to consumers. When you have to get FCC approval to offer a new product or a new process - there will be less flexibility by companies that own and operate networks.
Regulators are not independent operators. They can only act legally if there is an act of Congress that delegates them authority for a specific purpose. Ronald Reagan used to say, "The nine most terrifying words that anyone in America wants to hear are: I'm from the government, and I'm here to help." Across almost all sectors of the economy, federal regulators are growing exponentially. Consider that in the first two years of the Obama Administration, the federal government has issued 132 new "economically significant" rules - those that have an impact of more than $100 million per year. That is 40 percent higher than either President Bush or Clinton.
And, the federal regulatory workforce, in 2 years, has grown by 16 percent.
I don't need to tell you what a problem this could be. Higher taxes, reduced access to skilled labor, and an oppressive regulatory environment will cripple our global competitiveness.
There are areas where action can provide important and constructive assistance to unleash further advances in telecommunications technology. I've been working closely with my partner on the Commerce Committee, the Chairman Jay Rockefeller, to fashion comprehensive wireless spectrum legislation. After months of negotiations, we have agreed on a framework, as of today, that we will move forward in the next couple of weeks.
At its core, this bill will provide an allocation of spectrum to public safety, and combined with financial support from auction proceeds and governance reform, it will lead to the construction of a nationwide inter-operable broadband network for first responders. This will fulfill the last outstanding recommendation of the 9/11 Commission.
There's good news for commercial markets as well. The bill will take a broad approach that will free up considerable spectrum for commercial use in the next few years. Over the long-term, it will help the government allocate spectrum more efficiently. Ultimately, this should produce as much as $400 billion in new economic activity through licensed and unlicensed uses of spectrum, a constant supply of new spectrum, and important new research and development activities. I believe it has become a good, balanced piece of technology legislation, and we will work with all of the stakeholders to address the many concerns.
In conclusion, I just want to say that we've heard a lot of talk in Washington about "winning the future." But our future - in the global marketplace - will be suffocated by high taxes, and over-regulation. As Ranking Member of the Senate Commerce Committee, I promise you that I will continue to work at reducing these burdens.
I have total confidence that, through American ingenuity and spirit, we can continue to out innovate, and to out compete, the rest of the world. We just can't let our government get in the way.
Thank you for coming to Texas, we are very pleased to be with you today, and look forward to working with you on the Spectrum Bill, and anything that will spark economic activity. Thank you very much.