We need not entirely abandon our Current System in favor of a fundamentally different system. Limiting deferral and lowering the statutory rate would generally reduce incentives to shift income, eliminate the implicit cost of avoiding repatriation and reduce complexity and uncertainty for firms. Thank you, and i would be happy to answer any questions. Dr. Robinson, thank you. Our final witness, mr. Alan sloan. Chairman wyden how do you do this . Its on. Chairman wyden, Ranking Member hatch, members of the committee, im flattered to be here, and im honored especially pleased to be hitting backup cleanup, which is my normal role in journalism. Before i proceed, i have to say that im speaking for myself alone. Im not speaking for fortune magazine, my employer. Im not speaking for fortunes owner, time, inc. , im not speaking for the Washington Post which has run by material for more than 20 years. I, like senator hatch, am appalled to see that inversions are becoming a partisan wedge issue. I dont like this. Now, at fortune several weeks ago we put an American Flag on the cover, we called inversions positively unamerican. But we werent being partisan. We were being americans. Fortune is divided between republicans and democrats. Were acting collectively, not in the socialist sense, but in the societal sense. This isnt a republican problem. Its not a democratic problem. Its a problem for everybody. Its for all of us. And if you dont stop inversions now with some sort of band aid, by the time you get around to doing it, there will be tens of billions of dollars of taxes that will have been lost and will never be recovered. That will having lost and will never be recovered. Now i am familiar ive been writing about inversions and researching them for months. Ive heard the argument, well, inversion is a symptom. You can deal with them unless you deal with the whole problem. You deal with the problem, you deal with inversions. Well, i happen to have a doctor daughter who is an emergency room doctor. And when someone shows up at the e. R. Bleeding, they first thing they do is they put on a tourniquet, they stabilize the patient. And then they try to deal with the underlying problem. They dont say, well, gee, we have to deal with the underlying problem. Youve got an emergency here. It may not seem that way but youve got the beginning of, i think, a massive flood of inversions, unless you stop this. Now, i know very little about tax. I know very little about law. But i do know something about wall street and manias. And i look at this, this inversion thing, it reminds me of the do the dotcom bubble where people did things that were just crazy. But everyone was doing them. All of these people with degrees and a lot of money and fancy suits whispering in your ear, well, youve got to do this. So people did it. And it was just a disaster. So ive written about wall street for large parts of my career. And they gave us the internet bubble. They gave us toxic subprime securities. And now, theyre giving us inversions. Its a product. Its the latest thing thats good for wall street. Theres this whole rationale that surrounds it, but i dont think its good for society. It just doesnt work. And since i dont pretend to understand anything about the International Tax system, except that i dont understand it, and im a simple person. Im a recovering english major. Im not a legal person. I mean, to me, if i were you, which will probably never happen because id have to be nice to people and be polite, and i dont do that well. I would adopt one of the 11 bills, and sandy levin will probably be angry with me, but i would adapt the carl levin version, the one that has a time, expiration in it. Because if you can just stop these things for a while, you can buy time to fix the system. If you sit around and say, well in a few years, well do this, it will all be fine, by then, the patient will have lost so much blood, its going to be very, very hard to do anything remotely revenue neutral in a tax reform. The other complaint, again, ive heard endlessly, oh, its so unfair to make this may 8th which is the date in the transaction which i believe also happens to be the date that senator wyden published his oped in the wall street journal which messed me up because he wrote what i was going to write so i was furious. But i came here anyway. So the may 8th deadline was known, okay . If you look at the contracts of some of these deals there are provisions in there, you know, in case the antiinversion stuff changes. So its not as if this is unprepared or unfair. I mean, Everybody Knows this. You changed rules retroactively in 2004. And as best i could tell there was not earthquakes or brimstone or fire from the sky. So, please, you know, if you can act like americans, which i know you can, instead of squabbling. And you get the senate to go along and deal with the house, we can stop we can put on the tourniquet. We stop the patient from bleeding out, then we fix the system. And thats what i hope you will do. Thank you for your time. Im happy to answer any questions. Mr. Sloan, thank you. Colleagues, well stick to five minutes, well get in as many as we can. Im going to ask one question of all of you. Im going to start with you, mr. Stack. I have been about as big a flag waver for comprehensive tax reform as anybody around here. And i am going to continue to keep pushing for bipartisan tax reform as aggressively as possible. The reality is nobody believes that you can get comprehensive tax reform passed this year. And with the Investment Bankers in that inversion feeding frenzy, there may be 25 more inversions during that time. So, im just going to go down the row here this morning and ask each of you, will that be a bad thing for america . Mr. Stack . Yes, senator, thats a bad thing for america. That money is not just a onetime hit. That is a hit we take the year a company inverts. And its a cost we incur throughout the ten years of a budget window. In addition, i just want to add, companies not only reduce their u. S. Tax bill on day one when they invert, but they also adopt techniques to keep stripping out of the u. S. , for each of the next ten years as well. So we get hit with a double whammy. It has a longterm effect. Its permanent. So the cost of waiting i think is very high. Mr. Saintamans. I think, also, its bad. Its a symptom of a disease. Either you trap cash abroad when prevents companies to reinvest in the u. S. , and i think thats one of the challenges of the u. S. Tax code to date. Or you result in inversions meaning that you lose the control of these companies which invert in another country and thats a plus for the u. S. Overall its bad, and its a symptom of an issue in the tax code. Dr. Desai. I think in the short run it will feel good to do something. In the long run, its not going to help the country. It will have unintended consequences. I think there are a lot of medical analogies which are being turned around today which are helpful. Rather than a tourniquet, we may have a bleeding patient and these things might just anesthetize the patient. I think im going to take that as a no. Dr. Merrill. On this one, i very much agree with the comments of pascal which is these transactions are a symptom of a very broken system. And certainly, i can understand the desire to put on the tourniquet, but if you leave it on too long without resulting in the underlying problem, you get gangrene. So i can understand the desire to do something in the short term. But there is the risk of unintended consequences. So fixing the system is ultimately the only real answer to stop the problem. So youre in the middle of all of this. Well put you down in that way. My concern about that position for both of you is that tax reform is moving slowly. Inversions are moving rapidly. And that is a prescription for chaos. And that is why i want to see us address both of the issues in a bipartisan way. Dr. Robinson. I dont have any any data on this but i do remember reading about inversions, companies leaving other countries such as the uk. And then when a tax system is reformed, they have come back. Again, i dont have any data on that, but my sense is that these Companies May not be lost forever. I also think, as far as i understand, inversion transactions, it only affects the tax on the future future income. It doesnt impact the tax on the accumulated earnings. So in that respect, i dont think we run the risk of waiting to solve the real problem and sort of letting the markets play out as they do. You think it would be a bad thing . Okay. Mr. Sloan. I think letting 25 companies invert and then fixing the tax code is a recipe for disaster. I know a little bit about how inversion works. And mr. Stack is absolutely right that the problem is not so much what happens to foreign profits. But it becomes much, much easier to move money to earnings strip out of the United States. And you have to stop this. And at some point, when were not on the clock, ill bandy medical analogies with my colleagues. But this is not the time so well let that go. Let me see if i can get one other question in, ill make this for you dr. Desai, given what youve said. Lets take walgreens. Walgreens is an american icon. Its located in the heart of our country, and they are talking about inverting right now. Should americans be concerned about the prospect that if walgreens inverts, they will strip profits out of the United States, and put them into tax havens . Is that something americans ought to be concerned about . Without question. Absolutely, theres no question about that. The secondary question is what do we do about it. But absolutely, we should be concerned. Senator hatch. Thank you, mr. Chairman. This question is for dr. Robinson and dr. Merrill. Dr. Robinson, in your written testimony, you write, quote theres no evidence to support the assertion that u. S. Multinational corporations are at a competitive disadvantage because they face larger Corporate Tax burdens than their competitors under a worldwide and territorial tax system, end quote. You then cite three studies in support of your statement, including one study which finds u. S. Multinationals have effective tax rates that are 4 lower than multinationals based in the european union. But arent there numerous studies that show that u. S. Multinationals are subject to higher effective tax rates than foreignbased multinationals. And that seems to indicate that the u. S. Well, let me put it this way. Let me give you an example. Dr. Merrill cites numerous studies showing in his written testimony a Congressional ResearchService Released a report earlier this year studying effective tax rates. And one part of the report, c. R. Notes that the effective Corporate Tax rate in the United States is 27. 1 , as compared to the rest of the oecd countries that have an unweighted average of 23. 3 . That seems to equate that the u. S. Corporate tax rate is almost four Percentage Points higher, not lighter than the other oecd country, at least by one measure. Now, would you please comment on this. Id also like dr. Merrill to comment on the effective tax rates phased as compared to foreignbased multinationals. All right. The studies that i quote in my written testimony measure accounting effective tax rates from Financial Statements. Im not sure what dr. Merrill is going to follow up in terms of his study. It maybe a difference in how tax rates are measured. But in the accounting literature, there have been a number of studies, published and unpublished, that have searched extensively in differences for the Accounting Tax rates in firms resident in worldwide versus territorial countries. And also looked at, as i mentioned, the effect of these effective tax rates on decisions. There isnt, at least to my knowledge, in accounting literature as measured by an accounting effective tax rate, any evidence to suggest that u. S. Firms have higher rates. So, in my written statement, there is the comparison of about six different studies that compare effective tax rates to u. S. And Foreign Companies. None of the studies are specifically focused on the foreign income of Multinational Companies. And, perhaps, this is what dr. Robinsons comment is referring. The studies i referred to to look at u. S. Versus Foreign Companies including accounting data. One of the studies there, published by the business roundtable, compares the Financial StatementAccounting Tax rate of companies in 58 different countries. The u. S. Had a higher than average book effective tax rate than the other multinationals in that study. World bank does a study. We helped them with that. Compare taxes in 183 countries. Looking at purely domestic companies. And theres several other studies that i cited there that have you focused primarily on domestic investment. So there are a range of studies. I must say, that looking at a broad range of studies, almost every study ive seen has shown when you do an International Comparison of the u. S. Effective tax rates versus foreign, whether its foreign statement whether its done through marginal effective tax rates, the u. S. Consistently comes up above average. I put that on my testimony because it is commonly thought that effective tax rates at u. S. Companies are low. But international standards, according to all the studies ive seen, except for ones actually in leslies testimony, the u. S. Comes up in the top tile. May i address . Yes. This question is for dr. Desai, it seems that discussion in tax reform can result in the debate of capital neutrality versus capital import neutrality. Such a discussion usually is not helpful, in my opinion. And typically ends up going nowhere. You have developed an interesting new theory of International Taxation. Capital ownership neutrality. The idea being that a tax system should not distort the ownership of assets. And in fact, capital ownership neutrality seems to fit in nicely with the acquisition inversions that were seeing today in which a u. S. Corporation across a smaller Foreign Corporation inverts as part of acquisition. It seems that the u. S. Corporation is at a disadvantage if it is competing against a Foreign Corporation, based in a country with a territorialtype tax system. As we know, most developed countries have adopted territorial types of tax systems. In fact, 28 of the 34 oecd countries have territorial type tax systems. Is the accurate that the u. S. Corporation is at a disadvantage . Doctor, if you could, i brief answer because i want to recognize senator grassley. Yes. We develop neutrality. The central idea is what you said. What matters is not where the dollars go but who owns what. In the context were talking about, its clear these inversions are manifestations that u. S. Firms arent good owners because of taxation of assets around the world. Clear as to why territoriality makes sense. Mr. Chairman, heres what id like to do with my five questions. I want to ask mr. Stack a question, let him think about it 4 1 2 minutes, led him read a i want to read his statement, then stop so he can answer my question. Colleagues, at this point, we have had a vote called, and i think its the consensus of the members, that well have to break. Well get as far as we can. Senator. Mr. Stack, this is a question id like to have you think about. The treasury has recently informed me it has finally begun work on a report mandated by the american job creation act to study the 2004 antiinversion provisions. When does the Treasury Department expect to finnish its study of the 2004 inversions legislation, and before enacting such important legislation, shouldnt treasury at least complete the report mandated to study the issue . Like most of my colleagues here today, ive deep concerns about the practice of Companies Moving overseas for the primary purpose of avoiding u. S. Taxes. Average americans and companies that remain in america are rightfully outraged. When companies leave the United States, leaving the rest of us to foot the bill. Thats why in the early 2000s, i led an effort to prevent companies from simply setting up a filing cabinet and a mailbox overseas to escape millions of dollars of federal taxes. In 2004, when i was chairman, i was successful in enacting reforms that established rules, governing inversion for the first time. Under these reforms, an inverted Company Continues to be treated as a Domestic Company until theres a significant change in ownership. Or substantive Business Activities are located in the foreign country. A second feature of these reforms prevents an inverted company from skipping town without first paying taxes on untaxed earnings. Prior to these changes, all the company had to do was move its tax home out of the United States and file papers with a tax haven. There were no rules or standards for determining whether a transaction had substance or was purely a tax avoidance scheme. A number of companies took advantage of the lack of rules and standards to move to the Cayman Islands or bermuda as examples. These inversions were purely paper with no substantive change of operation. In 2004, provisions have successfully curtailed abuses targeted by the legislation as a nonpartisan Congressional Research service has said, these reforms, quote, effectively ended shifts to tax havens where no real Business Activity took place. This is not to say inversions no longer take place. The 2004 reforms were never intended to establish a berlin wall that forever trapped companies in the United States regardless of business needs. These reforms were targeted at and put an end to egregious abuses epitomized for augelin house which