Congress Clears Corporate Tax Reform Bill

By Agence France-Presse U.S. lawmakers gave final passage Oct. 11 to a bill that ends an export tax credit found improper by the World Trade Organization (WTO) but also piles on an extra $140 billion in new business tax breaks. The legislation was spurred by the need to repeal a portion of the U.S. tax code known as the "foreign sales corporation" (FSC) and "extraterritorial income" provisions -- a $5 billion-a-year tax break for exporters found to be an illegal subsidy by the WTO, which led to European Union punitive tariffs on U.S. products in March. The Senate voted 69-17 to pass the measure Monday, after a 280-141 vote in the House last week. The bill could end European trade sanctions, but also provides billions of dollars in unrelated tax breaks, incentives and other perks to businesses, tobacco farmers and others. "European tariffs on more than 1,600 U.S. products have reached 12% and could go as high as 17%," notes the National Association of Manufacturers, Washington, D.C. "The NAM expects that in response to this legislation, the EU will lift those tariffs." Backers of the bill said that despite the $140 billion price tag, it ends up as budget neutral by raising revenues from ending the FSC break and by closing some tax loopholes. The FSC provision is replaced with a tax cut for domestic manufacturers that will eventually bring their top corporate rate down by three percentage points to 32%. The break is also extended to a number of domestic, non-manufacturing firms, including construction companies, engineering and architectural firms, and the oil and gas industry. While efforts to replace the FSC provisions with tax breaks for domestic manufacturers had wide support, opponents of the final package complained that lawmakers had larded the bill with perks for special interests. The final bill includes a provision that will end a Depression-era subsidy program for tobacco growers, in return paying producers $10.1 billion. "It has a lot of tax cuts and it has a lot of tax increases, so you have to kind of weigh the pluses and the minuses," said Sen. Don Nickles, Republican chairman of the budget committee. "The plus is that we're going to be WTO-compliant and get away from these enormous . . . taxes that are on our exports that make our exports less competitive." IndustryWeek contributed to this report. Copyright Agence France-Presse, 2004

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