CNBC "Kudlow & Company" - Transcript

Interview

MR. KUDLOW: Doubling of the Cayman Islands tax haven, according to a brand-new government report reported today, but is it necessarily very bad thing? You know, I have a thought on this. Why don't we just abolish the corporate income tax right here in America? Here now we have the ranking member of the Senate Finance Committee, Republican from Iowa Charles Grassley.

Senator Grassley, welcome, sir. I mean, on the surface, this report -- what is it, the General Accounting Office; no, the Government Accountability Office -- 18,500 tax havens, it nearly doubled. The funny thing is, it's all in the same office building in the Caymans. What's your quick point on this, sir, because some people think this is not a bad deal?

SEN. GRASSLEY: Well, first of all, I think you have to realize that the credibility of the tax code is part of the reason we have voluntary compliance. And when a lot of people feel that somebody may be going off shore, avoiding taxes, and particularly is they are avoiding them illegally, that that is a bad swipe at our tax policies. And it seems unfair to middle-class America. And then the other part is to make sure that we get all the revenue that is owed.

MR. KUDLOW: A lot of people say, though, we're not losing any revenue. In fact, because people kind of move money, there's an example in this big story. It was in The New York Sun and The Wall Street Journal. I'm sure you saw it. Some people say they are avoiding the use of tax credits which would detract from revenues. They're putting the money in one spot for a little while, but eventually they do pay taxes on it.

SEN. GRASSLEY: Well, here's what's at stake. It looks like there's a whole industry of bankers, accountants and high-class lawyers that have an industry of telling people how to avoid taxes. And then there is filing overseas of the inability to know really who was involved in a business. And we ought to know two things. We ought to know who's involved with a corporation or what individuals are filing overseas, and we ought to know that there's economic substance behind the corporation that they're creating.

MR. KUDLOW: All right. So what's your message? Before we get to a solution, what's your message to wealthy individuals in hedge funds and others who are using the Cayman tax havens? What's your message to them?

SEN. GRASSLEY: My message is if you're doing it that it doesn't have economic substance. You don't have any business doing it. And secondly, be careful of tax interests that you're getting involved in to avoid taxes because the IRS is going to be on it. There's a lot of interest in Congress to make sure that a tax gap is closed. And this is one process of closing that tax gap.

MR. KUDLOW: Is the Senate Finance Committee going to take any additional actions to deal with this?

SEN. GRASSLEY: It's going to be fairly piecemeal in the sense that as we have sound proof of taxes being avoided, closing those loopholes. But the most important thing we can do is that when tax information is filed with the taxes, we need to know what the interest is. We need to know who is behind the interest.

MR. KUDLOW: All right. Well, I think non-reporting and breaking the law is a bad idea. I mean, yes, that's absolutely true. But sir, just as a final thought, I mean, as you well know, our corporate tax law double taxes. We tax the profits here at home, and we tax the profits they earn overseas. Europe and elsewhere does not do that. They give them credits for profits overseas. Either slash the corporate tax or abolish it altogether.

SEN. GRASSLEY: Well, I would be for the step of reducing corporate taxes. And I would do it from a principle to keep American business competitive. And so when I see the Germans reducing their corporate tax from 39 percent down to 29 percent, then that tells me we have to reduce ours down from 35 (percent) to probably 25 (percent) to stay competitive.

MR. KUDLOW: Is there any movement on the Finance Committee to have another one of these one-year corporate-tax holidays so you bring the income in from Europe, let's say, and you'll have a 5 percent tax instead of a 35 percent tax?

SEN. GRASSLEY: No, I don't think so because I think the last time we tried it, it didn't bring as much revenue back as we originally intended.

MR. KUDLOW: All right. We give thanks for your time, Senator Charles Grassley. Appreciate it, sir.

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