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How Tax Reform Will Grow Our Economy and Create Jobs: a Testimony to the U.S. House of Representatives

Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Storm Tracker: More than 860,000 customers still in dark in Michael's wake

Factbox: Utilities, Oil Producers Brace for Hurricane Michael Along U.S. Gulf


How Tax Reform Will Grow Our Economy and Create Jobs: a Testimony to the U.S. House of Representatives

The following is a testimony given by Douglas L. Peterson, President and CEO of S&P Global, at the Committee on Ways and Means, the chief tax-writing committee of the United States House of Representatives, on Thursday, May 18, 2017.


Chairman Brady and Ranking Member Neal, thank you for inviting me to speak today. And thank you to the entire Committee for your efforts to modernize the U.S. tax code.

I am grateful for the opportunity to share my perspective on how tax reform is essential for U.S. companies to better compete in the global marketplace.

S&P Global is the Worldwide Provider of Essential Intelligence

S&P Global is a leading provider of ratings, benchmarks, analytics and data to the capital and commodities markets worldwide.

S&P Global’s insights and commitment to transparency, integrity, and superior analytics have been at the forefront of U.S. economic growth since the company’s founding over 150 years ago. Beginning with the expansion of our nation’s railroad system, to the rise of the world’s most liquid and resilient capital markets, to the growth of digital information and technology, S&P Global’s essential intelligence has remained independent and has guided important decisions throughout U.S. history.

Two of our flagship products, the S&P 500® and the Dow Jones Industrial Average®, are widely accepted as the leading measures of U.S. equity market performance. Our research, products, and insights offer American investors, their families, coworkers, and friends the critical information needed to make informed financial decisions.

In addition to employing thousands of Americans across our great country, we work extensively with businesses of all sizes to help them invest and grow, as well as state and local governments, to help facilitate investment in schools, roads, bridges, and other public works. There is bipartisan agreement about the challenges facing our country’s aging infrastructure, and we hope to continue to bring our data, in-depth analytics, and unique ideas to the table to work with Congress to address those issues.

U.S. Tax System is Uncompetitive Globally

Currently, the U.S. has the highest statutory corporate tax rate among the 35 countries in the OECD. Importantly, other countries are attempting to lure our businesses—and their tax revenues—abroad. A recent Congressional Budget Office (CBO) analysis demonstrates not only the high statutory corporate rate in the U.S., but also the changes that have been made to tax rates in other G20 countries while the U.S. has stayed static. This study, which encompasses the 2003-2012 timeframe, shows how almost every country around the world has been incentivizing corporate investment through lower taxes. For example, during this timeframe, Canada dropped from 36 to 26% and China from 33 to 25%. The United Kingdom will have a 17% corporate tax rate by 2020.

Chart+-+Top+Statutory+Corporate+Income+Tax+Rates+in+G20+Countries%2C+2003+and+2012

Source: CBO International Comparisons of Corporate Income Tax Rates, March 2017

According to our research, the other countries where our competitors domicile their business and intellectual property have significantly lower corporate tax rates compared to the U.S., as seen in the chart below.

Figure 2

  United States Ireland U.K. Singapore
Corporate Tax Rate 35% 12.5% 19% (17% in 2020) 17%
Local Income Taxes Yes No No No
VAT/GST Sales/Use Taxes 23% 20% 7%

S&P Global’s Tax Rate is Twice That of its International Competitors

S&P Global is a U.S.-headquartered company, but, like so many others, we compete at the international level. While we have grown significantly since our beginnings, we have maintained ownership of most of our intellectual property in the U.S. We therefore have a much higher effective tax rate than our international competitors do. In fact, throughout our history, we have consistently paid an effective rate of over 30%, while many of our competitors pay in the low teens. As an example, we paid an effective tax rate of 30.1% in 2016 and $683 million in taxes. Because our greatest asset is our people, not machines or real estate, we are unable to avail ourselves of deductions and write-offs in a tax code that was written for a different time and a very different economy.

Table+%28S%26P+Global+Reported+Effective+Tax+Rate%29%2C+and+Chart+%28SPGI+Taxes+Paid%2C+2016%29

In 2016, even though 60% of our revenues were domestic, our U.S. tax base was 70% of our income because of our U.S.-based intellectual property. Over the last five years, S&P Global has paid $1.8 billion in taxes in the U.S.

Charts+-+Domestic+vs+Foreign+Source+Revenues%2C+and+Domestic+vs+Foreign+Mix+of+Income

At this unique moment in time, our country has the opportunity to put aside political differences and enact tax reform that not only brings the tax code into the 21st Century, but also ensures that America remains the best place in the world to do business.

It is Time to Level the Playing Field

The U.S. federal tax code was last updated over 30 years ago, in 1986. Its structure, however, is rooted in the post-World War II era. We have a markedly different economy today. For example, who could have foreseen the ubiquitous nature of technology in the way we conduct business today? Intellectual property is more important than ever to our global economy. And the pace of technological change is only accelerating.

Figure 7
Evolution of U.S. Economic Activity

U.S. GDP (Value Added by Industry)      
  1950 1986 2016
Private Service-providing 47.9% 60.0% 69.2%
Manufacturing 26.8% 18.1% 11.7%
Other 12.0% 14.3% 12.9%
Agriculture & Related 6.6% 1.6% 0.9%
Construction 4.3% 4.3% 4.2%
Energy 2.6% 1.5% 1.4%

Note: Figures may not add to 100% due to rounding

Chart+-+U.S.+GDP+-+Value+Added+by+Industry

Figure 9
Evolution of U.S. Employment

U.S. Labor Force (% of total)      
  1950 1986 2016
Private Service-providing 41.6% 57.8% 69.7%
Manufacturing 26.7% 17.1% 8.4%
Other 11.6% 16.4% 15.1%
Agriculture & Related 13.6% 3.0% 1.6%
Construction 4.5% 4.8% 4.5%
Energy 1.7% 0.8% 0.4%

Note: Figures may not add to 100% due to rounding

Chart+-+U.S.+Labor+Force+-+Percentage+of+Total

We must make adjustments that reflect the growth and development of our dynamic economy in order to keep up with the quickly evolving competitive global market. Three primary elements are critical to help ensure that U.S. companies can better compete in the global marketplace. These include:

Lower Rates

A lower corporate income tax rate must be part of any tax reform plan. Our country’s high statutory rate hinders the ability of U.S. companies to successfully compete on the global stage. A lower tax rate would not only help curb the exit of U.S. companies from our great country but would also create a powerful incentive for others to move here.

Competitive International Tax System

A tax reform effort must also result in a level playing field for American companies. Currently, foreign companies established in a country with a territorial tax system that sell goods in the U.S. pay little-to-no corporate tax when the profits return to the home country. In contrast, U.S. businesses that sell goods and services to foreign customers are taxed when their profits are returned to be reinvested in the U.S. This discourages reinvestment of profits generated abroad into the United States, a dynamic that simply doesn’t exist for the international competitors of U.S. companies.

This unfair playing field is tilted further against U.S. companies by border-adjusted taxes such as Value Added Taxes (VAT) that have been enacted in more than 130 countries around the world. Foreign companies can sell goods and services from a VAT country into the U.S. without paying VAT in the source country and without any border-adjusted tax upon import to the U.S. In contrast, goods and services produced in the U.S. and sold into a VAT country bear a tax upon importation at rates that can reach 20%.

This does not benefit American businesses, the communities in which they operate, their employees, or their families.

Modernized Tax Code for America’s Evolved Economy

Since the tax code was last reformed, the American economy has changed dramatically in terms of the products it makes, the markets it sells into, and the skills it requires. The emergence of technology, the growth of intellectual property, and the globalization of markets are all new features of our economy.

The tax code, though, has not evolved with the economy. The result is a highly unfair system that undermines competitiveness. The tax inequities that now exist between companies, and the inequities that advantage foreign competitors over their American counterparts can be traced to an antiquated code.

It’s time for a fresh start to American tax policy—one that levels the playing field for all American firms—and ensures that no firm (“old” economy or “new” economy, manufacturing or service) is disadvantaged when competing.

Restoring Growth and Competitiveness to the U.S. Economy

In a recent survey by the Business Roundtable, 71% of CEOs who responded identified tax reform as the best way to accelerate U.S. economic growth. This overwhelming response demonstrates the potential and the importance of reforming our tax code.

Chart+-+CEOs+-+Tax+Reform+is+the+Best+Way+to+Accelerate+Growth

The U.S. remains a “tax outlier.” Our tax system is antiquated, unfair, and hinders our ability to compete on a global scale. It is time for a change. The current system is stifling our economic growth. We are losing ground at a time when we should be leading. It is incumbent on us to seize this moment and enact substantial changes that will eliminate concerns for businesses about growing, investing and innovating in the U.S.

I hope this Congress will seize this moment.

Thank you for the opportunity to provide this statement at such an important time. I welcome any questions you might have.



Multiple Operators Suffer Damage to Fiber Networks from Hurricane Michael

Communications providers are working to restore services in areas impacted by Hurricane Michael, but storm debris, power outages and significant fiber damage are hindering progress in those counties most devastated by the storm.

As of Oct. 14, a number of counties along the Florida Panhandle had more than half of their cell sites down, including Bay County — home of Panama City and Mexico Beach, described as "ground zero" of the storm by U.S. Federal Emergency Management Agency administrator Brock Long — where 66.1% of cell sites were down. Similarly, neighboring Gulf County had 69.6% of cell sites down, according to data from the U.S. Federal Communications Commission.

Based on the amount of damage in the area and ongoing power outages, it could be weeks before services are restored. Long said Oct. 12 that after search and rescue, restoring communications in impacted counties is among FEMA's top priorities.

"You have to be able to communicate to appropriately respond and we are trying to do everything we can to get the private sector vendors, the Verizon [Communications Inc.]'s of the world, to get in to try to get their systems back up and running," he said.

Long added, however, that the process is not easy. "There was a tremendous amount of debris. When you look at the damage in Mexico Beach, that is where the ocean rose potentially 14 feet … and shoved buildings out of the way. When you have that type of damage, it takes time to get in and go through," he said.

Hurricane Michael made landfall Oct. 10 near Mexico Beach as a Category 4 hurricane with 155-mile-per-hour winds.

For its part, Verizon said the "vast majority" of Florida and Georgia service has been restored, with 99% of the company's network in Georgia in service and 97% of its network in Florida. But the company noted there are pockets, particularly near Panama City, where the damage is severe.

"The storm caused unprecedented damage to our fiber, which is essential for our network — including many of our temporary portable assets — to work. Our fiber crews are working around the clock to make repairs, and while they are making good progress, we still have work to do to get the fiber completely repaired," the company said Oct. 14.

Fiber is the connecting component of a network that carries data from point to point. It is necessary for Verizon's permanent and temporary cell sites to be operational. The company noted that while it has multiple fiber paths to carry data, "The severity and intensity of the storm caused damage to all duplicate routes in the Panama City and Panama City Beach area."

In terms of wireline services, the FCC said 291,300 subscribers remain out of service as of Oct. 14, including 205,643 subscribers in Florida. The figures were down from a day earlier, when a total of 337,223 subscribers were without service, including 233,843 in Florida.

The top residential video and broadband provider in Bay County is Comcast Corp., according to MediaCensus data from Kagan, a research group within S&P Global Market Intelligence. Comcast, the largest cable operator in the U.S., said in an Oct. 12 statement that it is working to get Xfinity services back online.

"As power returns … and it becomes safe for our technicians and restoration crews, we will work to repair any damages affecting our network," the company said.

As of Oct. 15, more than 162,000 customers in Florida remained without power, including all 27,275 customers served by Gulf Coast Electric Cooperative. The cooperative said in an Oct. 12 Facebook Inc. post that its distribution system "suffered catastrophic damage"

In Gulf County, the top residential video provider is AT&T Inc.'s satellite video service DIRECTV, according to MediaCensus data, while the top residential broadband provider is Mediacom Communications Corp., the fifth-largest cable operator in the U.S.

Mediacom said Oct. 14 that its recovery efforts are underway but its network in Florida has 14 miles of severely damaged fiber near Walton County, as well as 25 miles of damaged fiber east of Panama City that is obstructing video transmission from Gulf County to Walton County.

"Our current priority remains focusing on repairing damage to our high-speed data transport network and main transmission facilities and repairing downed lines where we have access to the area. We have outages from widespread loss of commercial power along with downed lines, and structural damage throughout our systems," the cable operator said.



Factbox: Hurricane Michael Impact Turns from Production Loss to Demand Destruction

Houston, Oct. 11 2018 — Hurricane Michael made landfall at the Florida panhandle as a Category 4 hurricane Wednesday with 155 mph winds, quickly destroying demand for power, natural gas and refined oil products. Shut-in oil production rose modestly from Tuesday to over 700,000 b/d, but the storm has stayed east of much of the region's production, which means supply should be back online quickly.

Meanwhile, the severity of the storm has surprised to the upside, which could a mean longer lasting and more severe impact on demand for power, natural gas, refined products and ultimately crude oil.

"We expect the impact on refined products demand to be below that of previous hurricanes in the Gulf Coast such as Harvey in 2017, as the region impacted by Michael has lower population density than Houston ... Nevertheless, the impacts are favoring the high side of our estimates given the sheer severity of the storm," said Claudio Giamberti, Head of Demand and Refining at S&P Global Platts Analytics.

As of 7 pm EDT, the eye of Michael was moving over southwestern Georgia with maximum sustained winds still at 100 mph, according to the National Hurricane Center. The storm is expected to move northeast across the Carolinas before heading back out to sea Friday morning.



Storm Tracker: More than 860,000 customers still in dark in Michael's wake

Highlights

Florida, Georgia, Carolinas hardest hit

Peakloads down about 20% on week

Houston, Oct. 11 2018 — As the remnants of Hurricane Michael churned through the South Thursday, it cut power to more than 870,000 customers, shaving large chunks off daily peakloads and, while more than 30,000 technicians began working to restore service.

The center of Tropical storm Michael was about 25 miles south of Greensboro, North Carolina, as of 2 pm EDT Thursday, the National Hurricane Center said. It still had maximum sustained winds of 50 mph, moving northeast at 23 mph with an expected move offshore from southeastern Virginia Thursday night.

Since it made landfall near Mexico Beach on the Florida Panhandle between 1 pm and 2 pm EDT Wednesday, the storm left more than 860,000 people without power, but some of those services have been restored.



Factbox: Utilities, Oil Producers Brace for Hurricane Michael Along U.S. Gulf

Houston, Oct. 09 2018 — With Hurricane Michael expected to make landfall on the Florida Panhandle as a Category 3 storm Wednesday, offshore oil and gas producers were busy evacuating crews and shutting in production Monday. By mid-day, nearly 20% of Gulf of Mexico oil production had been taken offline. That number will likely have risen when reported Tuesday as operators continued to shut down platforms Monday afternoon.

Meanwhile, just 24 days after Hurricane Florence made landfall, electric utilities were gearing up for Hurricane Michael restoration efforts by staging crews and supplies in the storm's path. Lost power demand is likely to have a knock-on effect on natural gas demand and prices.

After it brings over 100 mph winds to the western-most portion of Florida, Hurricane Michael is expected to turn northeast, bringing wind and rain to Alabama, Georgia and the Carolinas before heading back out to sea. Thiis article covers the key takeaways across commodities.