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“THE ORGANIZATION OF ECONOMIC COOPERATION AND DEVELOPMENT” mentioning the U.S. Dept of State was published in the Senate section on pages S10331-S10333 on July 20, 1995.
The publication is reproduced in full below:
THE ORGANIZATION OF ECONOMIC COOPERATION AND DEVELOPMENT
Mr. DORGAN. Mr. President, I would like to go to one other subject today briefly. It is one that almost no one knows anything about, including the Presiding Officer. It is called the Organization of Economic Cooperation and Development or OECD. It is an international organization that we pay 25 percent of the total cost. I do not think anybody in here really knows much about it. There are a lot of international organizations.
This year the United States will contribute about $62 million to fund the OECD. We are a member of the OECD. I am told that they meet in the finest places in the world and are headquartered in Paris. When they hold a meeting, they hold a meeting in a fine, great hotel in one of the great cities of the world. Folks come from all over the world to attend OECD meetings, the Organization of Economic Cooperation and Development.
One of the things they did recently is approve a report, a document statement, in which this country participated and signed, that talked about how you apportion the tax burden of international corporations among the countries in which they do business.
This little document said the OECD, with the United States signing the document, rejects something called global formulary apportionment. It does not mean much to anybody. But what it means to me is this country signs on a dotted line, along with the other member countries of the OECD, saying the United States is willing to give up or forgive about $15 billion a year in taxes that ought to be paid to America that will not be paid.
Seventy-three percent of the foreign-based corporations doing business in the United States pays zero in Federal income taxes, despite the fact they earn hundreds of billions of dollars here. There are companies that sell cars, VCR's, television sets, and other products--whose names you would recognize instantly--that do business here every day earning billions of dollars and pay zero in U.S. income taxes. Not pay a little bit--pay nothing in Federal income taxes.
Why is that? It is because the IRS is stuck with an outdated tax enforcement system which the foreign corporations love, and which foreign governments love as well. It is called the arm's-length method, which is used to evaluate transfer pricing that exists between related corporations. Tens of thousands of foreign corporations do business in the United States through U.S. subsidiaries that they own and control. These integrated companies sell things to themselves back and forth, and establish their own prices on those transactions. That is why we have examples of tractor tires being sold between corporations that are related for $7.50 for a tractor tire; a piano for $50; a safety pin for $29; toothbrushes for $18. Why would corporations price tractor tires at $7.50? Because they are moving profits in or out of countries with corporations they control, and that is called transfer pricing.
We use a system in taxing called the arm's length methodology which is an archaic, buggy-whip system. It is like taking two plates of spaghetti and trying to attach the two ends together; taking different corporations and connecting them together to save in a market system. It is a system that is totally unworkable and unenforceable. The result is massive tax avoidance. This country is losing to the tune of $15 billion a year, in my judgment, because we have not replaced this flawed system with a simple formula approach, as the States have used successfully for decades. I might say with respect to domestic businesses operating in different States that there is a standard formula that is used to apportion profits between jurisdictions using the amount of payroll, property, and sales as a guide. But the IRS's continued use of the arm's length method means we are losing $15 billion every year from the biggest international corporations in the world which do not pay taxes, despite earning huge profits in this country.
Our U.S. representative at the OECD signs on to an agreement that says we reject the use of formulary apportionment.
So as a result of that, I wrote to the Secretary of the Treasury and the Secretary of State and said tell me about the OECD. Who is involved in these negotiations? Where were the meetings held? What corporations were involved to persuade them to do this? They said we cannot give you that information. It is confidential. You have no right to the working papers of the OECD. They are secret.
I said, Wait a second. I am part of a group that funds them; about
$62 million this year from U.S. taxpayers' will go to the OECD. You are saying that we do not have a right to see the information?
I asked a series of detailed questions of both the Secretary of the Treasury and also of the Secretary of State to try to understand what is going on. The fact is you cannot get information. It is secret or otherwise unavailable, they say. If it is so secret, maybe they do not need our money. Maybe they do not need $62 million.
I want to share with my colleagues the money that goes to OECD. At a time when we are saying we do not have enough money to deal with problems in this country, including problems of families who are struggling very hard, a whole range of areas, nutrition, education, and so on, here is what has happened to OECD, the Organization of Economic Cooperation and Development.
In 1990, the American taxpayers contributed $36 million to the OECD. In 1995, $62 million--only 5 years later and our share nearly doubled. That is pretty interesting. In fact, from 1994 to 1995 the OECD, this little number in the State Department goes from a $50 million to a $62 million contribution.
We wrestle and debate on the floor of the Senate about why we have $5 million here or $10 million there. Mr. President, $62 million now goes to OECD, and it is on a steep increase; nearly doubling in the last 5 years.
They are off making deals with international corporations, and with other countries in a manner that will affect us by, in my judgment, shortchanging us probably $15 billion a year in taxes that we ought to get that we will not from foreign corporations that make profits here. Then they said to us you have no right to see the information.
Well, I would say to the Secretary of the Treasury, if you think that is going to stand, you are wrong. When the appropriations bill comes to the floor and you want more money, you had better be here with a lot of information. Otherwise, in my judgment, we are going to have a whole series of votes on the OECD, and you may lose a whole lot of money because you cannot say to us give us the money for these international organizations, but we do not have any interest in telling you about what these organizations are doing and what the policy implications are for this country.
So I would say to the Secretary of the Treasury and to the State Department, if they are listening, that they will not enjoy the debate we will have when the appropriations bill comes to the floor if they think we should spend $50 million or about $63 million as they have now requested in 1996 for OECD, and still take the position that we have no right to the information developed by this organization.
This is I know an arcane and difficult issue. And there are not many people that are even very interested in it. When I talk about the arm's-length method of tax enforcement versus a formulary method of tax enforcement, when you talk about transfer profits, transfer pricing, and enforcement methods, I understand why people's eyes fog over.
But I do not understand why a small business person who starts up a business and makes a profit and is required to pay taxes should have to watch as another large international business enters the American marketplace, has $5 billion worth of sales, make three-quarters of a billion dollars in net profit and pays zero in taxes to the U.S. Government.
It is not fair, and it ought to stop. We ought to expect those foreign corporations that do business in America to pay their contribution on their profits just as our Main Street businesses do every single day.
There is, I know, a web of complexity about all of this. I know that the State Department and the Treasury Department and others view this in some respects as a foreign policy issue and in some respects as an economic policy issue--only they understand and no one else is capable of understanding.
I might say the Senator who is presiding at the moment was recently a Governor of a State. The States faced this problem. They faced it because we have a lot of businesses that do business in every State in the Union, and the question was, how do we divide their profits? How do we know what part of their profits go to Indiana, Ohio, or North Dakota?
The States grappled with this and came up with a three-factor formula, and they said we are going to pass something called UDITPA, uniform division of income tax--payroll, property and sales. You make
$10 million and 1 percent of your payroll, 1 percent of your property, and 1 percent of your sales were in that State, then 1 percent of that profit should be allocated as the tax base, and that is the way it worked.
The fact is the States have led on this issue for decades; they solved this problem. And you look at what the Federal Government is doing with international corporations with exactly the same problem, and they are using a buggy-whip approach that is losing billions of dollars.
More importantly than losing the money, we have created the situation where we say to foreign corporations, You come in here and do business and you will receive a major advantage. You can do business and play a game so that you do not have to pay any taxes, but the American businesses that stay here at home and do business only here at home must pay certain taxes on their profits.
What is the consequence? The consequence is that the American business is disadvantaged because the foreign competitor gets by tax free. And that is the problem here.
I have alerted by letter and received apparently one giant yawn from the bureaucracy of this problem, and I wanted to alert them that they are not going to have a very pleasant August and September with their appropriations bills if they think they can tell folks in the Congress that they want $63 million for an international organization which send its representatives to the finest hotels in the world to meet for a while and sign documents that, in my judgment, contravene this country's interests, and then say to us who appropriate the money,
``Take a hike'' when we ask them to show us the documents that were used and all of the information that was developed in the construct of this policy.
Mr. President, it was therapeutic, if nothing else, to be able to talk about this in the Chamber this morning, and we will have a lengthier discussion on this subject when their appropriations bills come forward.
Line-Item Veto
Mr. President, let me make one final point. I will again be addressing the question of a line-item veto in the coming days because it is time for the House to appoint conferees, time for a conference, time to have a line-item veto. I want to find out who is interested in producing a line-item veto versus who is interested in providing pork. If we are interested in the line-item veto, and I am--
and I guess I voted for it 15 or 20 times in my career--I hoped when I voted for it in March we would not be debating in July whether or not we are going to have a line-item veto. Some apparently have decided to move into slow motion here while there is a Democrat in the White House. That is not the way the line-item veto works. And while we see headlines that say ``Gingrich Gets $200 Million in New Pork,'' I would ask, where is the line-item veto?
Pork is bipartisan and done on a bipartisan basis. I would like to have a line-item veto in the hands of Democrat or Republican Presidents to address it. If someone has some notion of where this bill is or what is holding it up, maybe we can find out if we can get a line-item veto in the hands of this President before these appropriations bills get to the White House.
Mr. President, I yield the floor.
Mr. President, I make a point of order a quorum is not present.
The PRESIDING OFFICER. The clerk will call the roll.
The assistant legislative clerk proceeded to call the roll.
Mr. SANTORUM. Mr. President, I ask unanimous consent that the order for the quorum call be rescinded.
The PRESIDING OFFICER. Without objection, it is so ordered.
Mr. SANTORUM. I thank the distinguished Presiding Officer.
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