A coalition representing millions of Americans has come out against legislative proposals that would amount to "bad, bad tax policy" with a letter to ranking US legislators on the House and Senate tax committees.

The letter - coming from 25 of the largest free market organisations in the US, and representing up to 25 million people - condemns proposals for legislation that would adversely affect US companies that move overseas. Its writers said it was sparked by "the current Capitol Hill and media hysteria over corporate relocation".

The effect of the legislative proposals - introduced in both the House and Senate, from Rep. Richard Neal, Rep. Scott McInnis, Sen. Max Baucus and Sen. Charles Grassley - would be to levy US taxes on all income, including foreign revenues and sales, earned by American corporations that reincorporate outside of the US.

The debate has largely centred around companies that have either stated the intention to, or have moved to Bermuda, including Tyco, Global Crossing, Ingersoll-Rand, Cooper Industries and Stanley Works.

Andrew Quinlan, president of the Washington-based Center for Freedom and Prosperity - a leading lobby group fighting against "protectionist taxation" policy - told The Royal Gazette that the centre had been joined by "the country's largest and most influential free-market groups in writing a letter to urge the chairmen and ranking members of the House and Senate tax writing committees to reject fiscal protectionism and instead reform the internal revenue tax code so that American companies would not have a reason to relocate overseas".

Mr. Quinlan added:"We should not punish workers, consumers, and shareholders by restricting the right of companies to adopt a new home country. Lawmakers should make America's tax system more attractive instead of imposing protectionist barriers against the free flow of goods and services."

Mr. Quinlan said the reason companies were choosing to become foreign-based was "because the system of taxing (global) corporate income is very anti-competitive".

He said: "Some lawmakers argue that tax reform is the best way of making America more competitive, but others, led by Senators Max Baucus and Charles Grassley, want to impose new laws that arbitrarily declare that certain companies are US taxpayers regardless of where they are chartered."

The 25 organisations that signed the letter, Mr. Quinlan said, believed that tax reform is the right approach. The wide-ranging coalition specifically urged the US Congress to junk the existing tax system in favour of a "territorial" system that would tax companies only on their US income.

One of the signatories of the letter is the Heritage Foundation, and senior fellow Daniel Mitchell said: "Territorial taxation will end corporate expatriations. The Baucus-Grassley legislation, by contrast, should be called the Dred Scott tax bill. It assumes that companies belong to the government and that they should not be allowed to protect workers, consumers and shareholders by escaping to jurisdictions with better tax law.

Dr. Mitchell added:"This issue already has been clouded by demagoguery. Some assert that companies choosing to re-charter in other jurisdictions will evade or avoid US tax. This is not true. All corporations, regardless of where they are based, pay tax to the Internal Revenue Service (IRS) on all profits they earn in the United States. Some also claim that expatriation is unpatriotic and hurts America. This is nonsense. Re-chartering helps US workers and US shareholders since the newly formed company still maintains its US operations, but now is able to more effectively compete with businesses that operate overseas."

The Coalition for Tax Competition sent identical letters to Sen. Baucus, Chairman, Senate Finance Committee, Sen. Charles Grassley, Ranking Member, Senate Finance Committee, Representative William Thomas, Chairman, House Ways and Means Committee and Representative Charles Rangel, Ranking Member, House Ways and Means Committee.

Rep. Rangel has, in years past, been a staunch ally of Bermuda dating back to when Sir John Swan was the Island's premier. But it is understood that he is in favour of the legislation although it could adversely affect companies that move to to the Island, or other foreign countries.

Copies of the Coalition's letter were also sent to policy makers within President Bush's administration.