112. Letter From the Secretary of the Treasury (Humphrey) to the Chairman of the House Ways and Means Committee (Cooper)1

My Dear Mr. Chairman: Last year, your Committee and the House of Representatives included as part of the tax revision bill new provisions giving a lower rate of tax on corporate business income earned abroad, somewhat similar to that available since 1942 to income earned in the Western Hemisphere. Provision also was made for postponement of taxes on the income of foreign branches until it was removed from the country where it was earned, a treatment somewhat comparable to that now given to the income of foreign subsidiaries. These sections were omitted from the bill as reported by the Senate Finance Committee, but the report of that Committee stated the hope that provisions along these lines might be developed in the Conference between the House and the Senate before final passage of the tax bill. This was not done. The Treasury Department has continued to examine the problem since that time.

I now submit to you a suggested draft of legislation2 designed to secure the results which were sought and apparently desired last year. This is in accord with the President’s recommendation in 1954, which was reaffirmed in his message on Foreign Economic Policy on January 10 of this year.3

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The purpose of this recommended legislation is to facilitate the investment abroad of capital from this country. At present, our business firms are at a disadvantage in countries with lower taxes than our own when they have to compete with local capital, or capital from countries which impose lower taxes on foreign income than we do. Foreign countries are also under an incentive to increase taxes on United States enterprises up to the level of United States tax rates.

Capital investment will aid in the economic development of foreign countries. Participation by United States enterprises will encourage development along the lines we have followed in this country which are especially helpful in raising living standards, through high wages and mass markets, and which will promote the flow of international trade with the United States.

The Treasury staffs and I will be glad to be of such assistance as we can to you, your Committee, and your staffs in any consideration which you may wish to give to the taxation of foreign business income. A memorandum explaining our analysis of three of the problems we have considered in this area is enclosed.4


G.M. Humphrey
  1. Source: Department of State, Central Files, 811.11/7–2755.
  2. Cooper introduced the legislation, which became H.R. 7725, in the House of Representatives on July 29, 1955. A copy of the bill is in Department of State, Central File 811.112/8–3055.
  3. For text of the message, see Public Papers of the Presidents of the United States: Dwight D. Eisenhower, 1955 (Washington, 1956), p. 32.
  4. Not printed.