Van Hollen, Colleagues Press Treasury Department for Measures taken by Administration to Keep Jobs in the United States

Today, U.S. Senator Chris Van Hollen (D-MD) pressed Secretary of the Treasury Steven Mnuchin and Commissioner of the Internal Revenue Service (IRS) Charles Rettig for measures the Administration is taking to keep jobs in the United States and mitigate the harm caused by a new loophole created by the Republican-led 2017 tax law that encourages U.S. companies to move jobs and operations overseas.

Senators Amy Klobuchar (D-MN) and Tammy Duckworth (D-IL) and Representative Peter DeFazio (D-OR-04) joined Van Hollen on the letter.

In May, Van Hollen reintroduced legislation with Klobuchar and Duckworth to eliminate an incentive created by the 2017 tax law that rewards U.S. companies that move jobs and operations overseas to minimize their tax liability. The Removing Incentives for Outsourcing Act would eliminate an unfair incentive that allows U.S. companies to use excess foreign tax credits (FTCs) to shelter profits in tax havens. To ensure that the data on tax havens and offshoring is publicly available, the Disclosure of Tax Havens and Offshoring Act, led by Senator Van Hollen and also cosponsored by Senator Sheldon Whitehouse (D-RI) will require corporations to disclose their financial reporting on a country-by-country basis so Americans can see the extent to which corporations are abusing tax havens or offshoring jobs.

Initial reports indicate that since the 2017 tax law was enacted, American corporations have chosen to increase their investment in physical operations overseas instead of the United States. This is precisely the harm that Klobuchar and her colleagues sought to avoid.

“Twenty months have now passed since President Trump signed into law the 2017 tax law and we write to request information on measures the Administration is taking to discourage the offshoring of operations by U.S. companies as a result of the incentives created by the law,” the Senators wrote.

“We respectfully request that you provide answers to the following questions:

1. What specific measures are you taking to monitor the connection between the changes to international tax law made in the 2017 tax law—especially the new GILTI regime—and the offshoring of physical operations by U.S. corporations?
2. What specific measures are you taking to mitigate the incentives for offshoring created by the 2017 tax law, especially the new GILTI regime?

We appreciate your prompt attention to this matter.”

The full text of the letter can be found below:

September 9, 2019

Dear Secretary Mnuchin and Commissioner Rettig:

We write today to ask about any actions the Administration has taken to mitigate the harmful incentives for offshoring created by the 2017 tax law. At the time the law was considered, experts warned that the new international tax rules—specifically the new tax on Globally Intangible Low-Taxed Income (GILTI)—would “incentivize offshoring” of jobs currently held by American workers.

The application of GILTI to only “supranormal returns” and the use of a global or blended rate for assessing the minimum tax threatened to have a “perverse impact” that could encourage U.S. corporations to move physical operations—and the jobs housed at those physical operations—overseas. After the law was enacted, we introduced legislation to remove the incentive to offshore facilities by applying the minimum tax on a per-country basis and removing the exemption for “supranormal” returns on overseas earnings.

While the ultimate effects of the incentives included in the international tax provisions may take years to materialize, initial reports confirm our belief that these incentives favor the offshoring of physical operations by U.S. corporations. One comprehensive study recently found that while U.S. corporations have increased their total investment in physical operations since the 2017 tax law was enacted, this increase in investment is attributable almost entirely to an increase in foreign investment—investment in U.S. operations by U.S. companies has not changed.

Prior to enactment of the 2017 tax law, President Trump voiced support for discouraging offshoring, stating that “[m]y administration rejects the offshoring model.” Twenty months have now passed since President Trump signed into law the 2017 tax law and we write to request information on measures the Administration is taking to discourage the offshoring of operations by U.S. companies as a result of the incentives created by the law. In answering our questions, we expect you to make use of the nonpublic Internal Revenue Service data regarding the profits earned by U.S. companies operating in foreign jurisdictions.

We respectfully request that you provide answers to the following questions:

1. What specific measures are you taking to monitor the connection between the changes to international tax law made in the 2017 tax law—especially the new GILTI regime—and the offshoring of physical operations by U.S. corporations?
2. What specific measures are you taking to mitigate the incentives for offshoring created by the 2017 tax law, especially the new GILTI regime?

We appreciate your prompt attention to this matter.

Sincerely,

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