Senator Kay Hutchison of Texas on Sarbanes-Oxley: Outsourcing US Leadership

Investors Business Daily on April 16, 2007 carried an op-ed piece by the Texas Senator, Kay Bailey Hutchison, decrying the impact of the punitive Sarbanes-Oxley legislation on American business. Senator Hutchison has reprinted her essay on her Senatorial Website . Definitely worth reading! Here is an excerpt:

In the aftermath of Enron's spectacular collapse, and a succession of shocking accounting scandals demonstrating gross unethical conduct, Congress passed the Sarbanes-Oxley Act of 2002. This landmark bill was enacted to restore investor confidence in the wake of these abuses by making it much harder for CEOs and their accountants to misrepresent corporate earnings.   Nearly five years after the bill was signed into law, the Sarbanes-Oxley Act, although well intentioned, has also created unexpected and unprecedented costs for the business community — and those costs are spawning a rapid relocation of capital (the lifeblood of prosperity) from the U.S. to other countries.   Since the early 1900s, America has been the global leader of capital formation. A century ago, J.P. Morgan and other capitalist titans moved their offices from London to the U.S to recognize this achievement. Now they're moving back to London — a city that successfully advertises itself as a "Sarbanes-Oxley-free zone."   According to the American Enterprise Institute, the costs of the Sarbanes-Oxley law are north of $1.1 trillion. If accurate, this amounts to an 8% or 9% tax on every good and service produced in the U.S. — a tax that is inevitably passed on to consumers like you and me. This burden is why numerous American companies are choosing to relist their companies overseas.   In the past few years, the statistical evidence for this capital flight has become undeniable. In 2001, the year before Sarbanes-Oxley was passed, half of the dollars raised in global IPOs were raised on a U.S. exchange. By 2005, that amount had shrunk to only 5%. During the same year, the New York Stock Exchange had only six new foreign listings, but the London Stock Exchange had a whopping 129.   These events have helped fuel Europe's stock market, which earlier this month eclipsed the U.S. in stock market value for the first time since World War I. In a very real sense, we are in the process of outsourcing America's lead in world capital markets.

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