Statements on the Introduced Bill and Joint Resolutions

Floor Speech

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By Ms. CANTWELL (for herself, Mr. Vitter, Mr. Carper, Mr. Cochran, Mr. Inouye, Ms. Landrieu, and Mrs. Murray):

S. 626. A bill to amend the Internal Revenue Code of 1986 to repeal the shipping investment withdrawal rules in section 955 and to provide an incentive to reinvest foreign shipping earnings in the United States; to the Committee on Finance.

Ms. CANTWELL. Mr. President, I am pleased to join with my colleagues Senators Vitter, Carper, Cochran, Inouye, Landrieu, and Murray to introduce the American Shipping Reinvestment Act of 2011. This legislation will build on work Congress started in 2004 to strengthen the U.S. merchant marine, create needed jobs in U.S. ship building, and stimulate economic activity in our maritime sector.

Since our Nation's founding, the maritime sector has been integral to U.S. national security and economic security. American companies own and operate both U.S. flag ships and a significant number of vessels under international registries. The U.S. flag fleets of these companies generally are built in the United States and are manned with U.S. seafarers. These U.S. flag fleets support not only the shipbuilding industrial base in this country and the pool of qualified seafarers, but they also create the shipping assets that are needed for military sealift in time of war or national emergency.

Most people understand commercial shipping and understand that we maintain a fleet of ships for military purposes. What may not be as well known is that the international ships of some American-owned companies are part of what is called the effective U.S.-controlled fleet, EUSC fleet. The EUSC is the fleet of merchant vessels registered in certain foreign nations that are available for requisition, use, or charter by the U.S. Government in the event of war or national emergency.

For example, U.S. flag commercial vessels and their American crews transported the majority of the cargo, more than 25 million measurement tons of cargo, in support of Operations Enduring Freedom and Iraqi Freedom during the period of 2002-2008.

What people also may not know is that the EUSC fleet has been in decline for the past quarter century, largely because of U.S. tax policy. Following enactment of certain 1986 tax law changes, there was a precipitous decline in American-owned international shipping assets. To remain competitive, many American-owned shipping companies either became foreign companies or simply divested themselves of their foreign assets.

A 2002 study commissioned by the Department of Defense and performed by professors at the Massachusetts Institute of Technology found that the EUSC fleet dropped by 38 percent in terms of numbers of ships and nearly 55 percent in terms of deadweight tonnage between 1986 and 2000. Perhaps more importantly, these declines have been largely experienced in militarily-useful vessel types. For example, the results of a 2002 DOD study found that if the EUSC fleet continues its present decline, DOD's ability to support U.S. military tanker requirements will diminish over time.

Fortunately, Congress recognized this problem in 2004 and addressed it by enacting the tonnage tax regime as part of the American Jobs Creation Act. Our legislation today builds on that policy by correcting an oversight in the 2004 act that has continued to stymie the ability of U.S. shipbuilding companies to invest in new ships in the United States.

We have very strong economic and national security reasons to support U.S. owned shipowning companies and to maintain a vibrant maritime industry in this country. We also have to continue to support needed changes in our tax code so that we provide operators of U.S. flag vessels in international trade the opportunity to be competitive with their tax-advantaged foreign competitors.

Notwithstanding the significant competitive disadvantages between 1986 and 2004 for American companies operating international ships, there continues to be several U.S. owned shipping companies with foreign operations, and our legislation is directed at helping them sustain and grow their U.S. flag fleets and to maintain their EUSC fleets. This bill will help these companies make needed investment in the U.S. economy, and create jobs in a way that also will enhance national security.

Specifically, the American Shipping Reinvestment Act of 2011 would repeal an outdated section of the Internal Revenue Code and allow U.S. shipping companies with foreign income earned prior to 1986 to reinvest it into the U.S. for the purpose of growing their U.S. flag operations.

Congress first included foreign shipping income in Subpart F in 1975, which meant that all shipping income was taxable at the full U.S. corporate tax rate no matter whether it was invested abroad or in the United States. However, a temporary rule, applicable to foreign shipping income earned from 1975 to 1986, continued to allow for deferral in cases where this income was reinvested in qualifying shipping activities. Section 955 of the Internal Revenue Code provided that this income would be included in gross income, i.e., taxed, immediately under Subpart F in the event of any net decrease in qualified shipping investments.

The American Jobs Creation Act of 2004 restored for shipping income the normal tax rule under which non-Subpart F income of foreign subsidiaries is not taxed by the United States until it is repatriated, generally as a dividend. In restoring the potential for deferral for certain shipping income, Congress in 2004 returned the treatment of shipping income to where it was prior to 1975.

Unfortunately, Congress did not address the rules under IRC Section 955 that apply to income earned between 1975 and 1986, thus creating a situation that this income is permanently stranded offshore. Our bill would repeal IRC Section 955 and will allow these stranded assets to be reinvested in the United States under the favorable tax terms that were in effect for other companies and industries in 2004. Specifically, the legislation provides a one-time opportunity for American-owned shipping companies to bring foreign source income back into the United States at a discounted tax rate for the purpose of expanding and growing our domestic maritime industry. Without the commonsense change in our legislation, these old, stranded assets will never return to the United States and never be subject to U.S. taxation.

The bill is guaranteed to create jobs for American workers with the funds being brought back into the U.S. economy--on the ships, in the shipyards building the ships, and in supporting businesses. The bill contains a provision that would recapture any tax benefits if a shipping company reduces its full-time U.S. employment levels.

This bill also would enhance U.S. national security interests by supporting shipyards that are vital to our defense industrial base, by enabling new U.S. flag tanker capacity to transport our Nation's energy products, and by providing DOD with critical assets--manpower and ships--necessary to help sustain military sealift.

The bill is strongly supported by maritime labor, shipyards, and ship owners and operators and can provide a boost to the U.S. maritime industry at a time when the U.S. is struggling to find its economic footing. The jobs created by this legislation are well-paying, long-term jobs in a crucial sector of our Nation's economy. I urge my colleagues to join me and my other original cosponsors in supporting this bill.

Mr. President, I ask unanimous consent that the text of the bill be printed in the Record.

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