TEXT AVAILABLE OF GEPHARDT'S TESTIMONY ON CFC INCOME.

Before addressing the substance of the issue you examine this morning, I want to commend Congressmen Dorgan and Obey for their leadership. Their legislation has sparked an important debate on the effect of our tax code on our nation's competitiveness.

I also want to commend you, Mr. Chairman, on the hearings that your Committee has held all year. You are building the record we need to address our stagnating economy and declining competitiveness.

During the 1980s, while most of our allies and competitors were rebuilding themselves economically, we in the United States defended the West against the Soviet Union and debated whether America should have an "industrial policy."

Our resolve, and the reforms of Gorbachev, produced the end of Communism and the termination of the Soviet threat -- outcomes we applaud -- but our economic indecision produced a result we all regret: While foreign governments embarked on policies to make their economies grow, America fell behind. We lost the capacity to produce jobs, increase growth, raise the living standards of our workers, and lift the productivity of our firms. In many ways, we have become a mighty fortress with a hollow core.

Worse, we have permitted pointless and counter-productive programs to accumulate without challenge, procedures that actually throw Americans out of work. When we can abolish such policies, we ought to jump at the chance. And that is precisely the opportunity being offered us by our colleagues today.

The American Jobs and Manufacturing Preservation Act of 1991, H.R. 2889, addresses a very important defect in our nation's tax code -- it will eliminate the incentive for companies to locate their manufacturing facilities overseas. It is designed to get at the very real problem of runaway plants -- a problem that this administration either seeks to ignore or supports wholeheartedly, as did the previous one.

For too long our tax code has allowed companies to defer taxation of foreign source income. This legislation will end deferral for U.S. shareholders on income of controlled foreign corporations that is attributable to property imported into the U.S.

In 1982, Senator Bradley and I introduced the Fair Tax Act. The theory, in part, behind our bill was that businesses and individuals were engaging in certain practices more because of the tax outcome, than because it was in the long-term best interests of the investor or the country. Our view, one that eventually won the support of President Reagan, was that we should enable people to make decisions not because of the size of the tax break they would get, but because the economics were right.

Congressmen Dorgan and Obey's bill is another step towards a neutral tax code. It would eliminate the incentive that exists for companies to move their production facilities overseas and then simply ship their products back to the U.S. for sale.

This week the Wall Street Journal ran an article highlighting a Commerce Department study that shows that U.S. multinational corporations didn't expand employment significantly either here or overseas during the 1980s. The study should be noted more for its timing than its substance. While the Department of Commerce's chief economists said "this defeats the whole concept of exporting jobs," I think the study is more an indictment of the failed policies of the Reagan/Bush Administration that led to economic stagnation and decline.

In fact, when you look at the data, you see that sales by these controlled foreign corporations increased by almost $35 billion between 1982 and 1988 and are growing at a rate of almost 10 percent per year. If you use the Department of Commerce's figure that for every $1 billion in lost sales, 25,800 jobs are lost, you see that controlled foreign corporations may have cost us more than 900,000 jobs.

We know the stories behind the statistics. All of us have seen plants in our Districts close and jobs moved overseas. None of us like it. Now, we have the opportunity to do something about it -- not by penalizing our companies, but by eliminating the incentive to move overseas.

It's ironic that this Administration generally advocates on the one hand a policy of capital export neutrality while opposing, in principle, this legislation. They're more interested in the tender sensibilities of our trading partners and our multinational companies than the jobs of our workers.

The American people are fed up. They can't understand why their President won't support extending unemployment benefits, while he continues to support subsidies for companies sending their jobs overseas. In effect, we're giving companies the incentive to take the "Made in the USA" label off of their products. That's simply wrong.

While Congressmen Dorgan and Obey are to be commended for their leadership on this issue, this is not a new idea. In fact, the Nixon and Carter Administrations offered proposals to address this important issue. And, the House of Representatives passed similar legislation in 1987. It is my hope that this Committee will, after appropriate study, agree with me that this legislation should become law before we adjourn next year; its time has come.

Thank you Mr. Chairman.