WASHINGTON, D.C. – During a Senate Finance Committee hearing entitled “How U.S. International Tax Policy Impacts American Workers, Jobs, and Investment,”  U.S. Sen. Sherrod Brown pushed for an end to tax breaks from the 2017 tax law, that reward companies that move jobs and operations from Ohio, overseas. Brown is currently working with Senate Finance Committee Chairman Ron Wyden (D-OR) and Sen. Mark Warner (D-VA) on a policy framework that will get rid of incentives in the tax code to ship jobs and factories abroad, reward investment in American jobs, and make multinational corporations pay their fair share.

“For decades, we’ve had a corporate business model where companies shut down production in Toledo or Dayton or Youngstown. They collect a tax break to move jobs to Mexico or China, where they can exploit workers, only to sell their products back into the United States. And Mr. Chairman, you know the 2017 tax bill only made it worse,” Brown said during the hearing. “I’m working with [you and] Sen. Warner from Virginia on this committee on a framework that will get rid of incentives in the tax code to ship jobs and factories abroad, reward investment in American jobs, and make multinational corporations pay their fair share. We’ve worked together on this for years and I’m proud to be partnering with him and with Chairman Wyden.”

During the hearing, Brown posed a straightforward question to tax experts: “Does the tax code provide a better tax break for building a factory in Ohio or in Mexico?” Dr. Kimberly Clausing, Deputy Assistant Secretary for Tax Analysis at the Treasury Department, responded that the current tax code creates a “tilt in the playing field in favor of any foreign operation, relative to U.S. operations,” and described the current tax code as “America last tax policy.”

The senator also questioned Executive Director of the NYU Tax Law Center Chye-Ching Huang, who responded that the current code “makes America potentially the least attractive place” to place physical assets from a tax perspective.

Brown continues fighting for a fairer tax code as workers at the GE-Savant Plan in Bucyrus and Ford Plant in Avon Lake see their companies investing in jobs overseas rather than here in Ohio.

More on Brown’s hearing exchanges is included below and video is available HERE:

Brown: “For decades, we’ve had a corporate business model where companies shut down production in Toledo or Dayton or Youngstown. They collect a tax break to move jobs to Mexico or China, where they can exploit workers, only to sell their products back into the United States. And Mr. Chairman, you know the 2017 tax bill only made it worse.

“I’m working with [you and] Sen. Warner from Virginia on this committee on a framework that will get rid of incentives in the tax code to ship jobs and factories abroad, reward investment in American jobs, and make multinational corporations pay their fair share. We’ve worked together on this for years and I’m proud to be partnering with him and with Chairman Wyden.” […]

“My question is Dr. Clausing and Ms. Huang, imagine for a moment a CEO is deciding whether to retrofit an empty factory in Ohio, whether to build a brand new factory in Mexico. He’s asking his chief tax counsel which option would get the company more favorable tax treatment. What would the CEO’s tax expert say, which would they say gives the company a bigger tax break – locating the factory in Ohio or in Mexico? Ms. Clausing and Ms. Huang if you would both answer.”

Clausing: “Thank you for that thoughtful question. So one of the problems with our tax code now is it doesn’t just incentivize operations in low tax countries and havens, which is something we’ve been talking about so far today. But it also incentivizes operations in high tax countries because you get to blend the income in the high tax country with the low-tax country and together you get to half the U.S. rate. So take Mexico, which was your example, they have a corporate tax rate of thirty percent but if you have some income in Mexico and some income in an offshore haven, you can blend those streams of income and together get that 50 percent deduction relative to doing business in Ohio. So that’s a large tilt in the playing field in favor of any foreign operation, relative to U.S. operations. I sometimes refer to this as America-last tax policy.”

Brown: “Ms. Huang, your comments.”

Huang: “Yes, I absolutely concur. You have incentives within GILTI of having those tangible assets in Mexico allows you to exempt profits from both Mexico and potentially from Bermuda if you have managed to ship some profits to Bermuda, you get to shield both of those from the GILTI tax. And then as Dr. Clausing mentioned, that because of the averaging feature, there’s an incentive that makes American potentially the least attractive place to put that physical asset from a tax perspective."

Brown: “So the 2017 tax law, which Senator Wyden and I and others on this committee on the Democratic side opposed, in part for many reasons, it was a giveaway to the wealthiest people in the country, similar to what Senator Warren’s talked about. And also, the GILTI provision gave a 50 percent off coupon on taxes if they move overseas. So, Ms. Clausing, the last minute or even less, talk a little bit about what incentive this creates.”

Clausing: “Yeah, so those two together, the powerful incentive of having the first ten percent of your assets become completely tax free off shore means that if you take some equipment from the United States and move it abroad, you qualify for even more tax free treatment abroad.

“You know there’s also another provision in the current tax law that FDII, which turbo charges that, because as you reduce your investments in the United States, you get even larger FDII deductions. With both hands, you’re encouraging movement offshore in plant and equipment through that tangible asset exclusion.

“In addition, there is the blending issue that we mentioned before right, which means that all of the foreign operations like a master distiller you can combine high-tax and low-tax income and get to this outcome. It’s really much better than you would get operating in the United States.

“And, you know I think that if we’re focused on competitiveness for the United States, we need to think about ways to make this a productive location to do business. And that includes fixing all of these tax things but it also includes making key investments in things like infrastructure and education are institutions in our response to crisis. And if we combine those two things together, you know, then nothing can stop us the United States will be in an excellent place to do business.”

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