Congress Moves Closer to Repealing Foreign Sales Corporation Law
Today the U.S. House of Representatives approved legislation that repeal export tax breaks that have been ruled illegal by the World Trade Organization (WTO). Voting 251-178, the House approved H.R. 4520 that would cut taxes for manufacturers and overhaul U.S. rules dealing with international taxation. The Senate passed its own version of the tax measure in May. Now conferees from both chambers will be appointed to reconcile differences between the two bills.
Despite considerable differences between the two bills, each version includes billions of dollars in corporate tax breaks and share the same core aim: resolution of a long-standing dispute with the European Union (EU) over U.S. tax breaks to exporters under the Foreign Sales Corporation (FSC) law, and its successor regime, the Extraterritorial Income Act (ETI).
One significant difference between the House and Senate measures is that the House bill's $155 billion in tax cuts are offset by $121 billion in tax increases and other revenue-raising provisions, leaving a $34 billion difference. The Senate measure is revenue neutral.
Both the House and Senate measures would reduce the income tax rate for manufacturers from 35 percent to 32 percent by 2008, and include a special one-year 5.25 percent income tax rate for companies that repatriate foreign earnings.
The WTO has repeatedly found FSC/ETI provisions to be impermissible under international trade rules and has authorized the EU to impose up to $4 billion in retaliatory tariffs on U.S. exports. The EU began in March to impose tariffs of 5 percent on a wide range of U.S. products, and said the rate would increase by 1 percentage point a month up to 17 percent. As of June 1, the tariff rate was 8 percent.
The Bush administration repeatedly has called on Congress to repeal the FSC/ETI tax breaks and bring the United States into compliance with its WTO obligations.
|posted by Douglas N. Jacobson| Permalink 
