Senate Sets Aside FSC Issue?For Now
WTO dispute tangled up with outsourcing, job protection, other issues
WASHINGTON, DC - 03/08/04 - The Senate has delayed further consideration of a bill to repeal export tax breaks ruled illegal by the World Trade Organization (WTO) as members sought to load the bill with amendments, including one that passed for restricting outsourcing of some US jobs to foreign countries, reports The Washington Wire.
Three days after the European Union (EU) started imposing WTO-authorized retaliatory tariffs on US imports, Republican leaders set the bill aside March 4 for two weeks at least as the Senate turns to debate about the federal budget followed by a recess.
The Senate is due back from recess the week of March 22.
The WTO issue reflects just part of the pending bill in the Senate and a legislative proposal in the House of Representatives, both of which would make far-reaching changes to the international corporate tax system.
Senators adopted the Democrat-sponsored outsourcing amendment after members worked out an agreement weakening it substantially. As passed 70-26, the amendment would prevent companies from outsourcing jobs paid for by federal contract if the work was previously done by US workers, but a number of conditions would apply.
First, every year the amendment would take effect only if the Secretary of Commerce determined that it would not result in a net loss of US jobs because of, for example, foreign retaliation.
Second, national security projects would essentially be exempt from the amendment.
Third, countries that have signed the WTO agreement on government procurement would be exempt - although among the non-signatories are India and China, two countries expected to account for a lot of outsourcing.
Outsourcing has exploded as a political issue in this election year since President Bush's Council of Economic Advisers published in its annual report a view that the practice of sending work abroad would, in the long run, help the US economy remain competitive.
The underlying bill without amendments appears to have broad bipartisan support in the Senate. At issue are two US laws that the WTO has ruled as illegal export subsidies, the decades-old Foreign Sales Corporation (FSC) and its successor, the Extraterritorial Income Act (ETI).
The WTO authorized the EU to impose sanctions amounting to $4 billion a year. The EU began March 1 imposing tariffs worth 5% of the authorized level and is prepared to increase the level by one percentage point a month up to 17%.
Debate on the Senate bill began March 3. Its main provision would over three years repeal FSC / ETI and reduce the tax rate for all US-based manufacturing companies - not just for certain exporting companies and not for offshore manufacturing - to 32% from 35%.
Other provisions would reform the US international tax regime, including ending double taxation of income and shutting down offshore tax shelters. It would also close abused loopholes in the tax regime, in line with Treasury Department recommendations, including some infrastructure leasing deals widely regarded as scams.
Whenever the Senate might resume debate on the FSC / ETI repeal bill, senators have promised to bring up more amendments, among them a politically contentious one about overtime pay rules.
Meanwhile, Republican leaders in the House of Representatives have changed their version of FSC/ETI repeal, a bill that has stalled for months lacking sufficient support.
In the latest version Rep. Bill Thomas (R-CA), chairman of the House Ways and Means Committee, drastically altered the bill he pushed through his committee in 2003 and it now covers a broad range of tax issues - both domestic and international - that extends far beyond the FSC / ETI repeal.
To gain support his revised bill would reduce the federal revenue loss over 10 years to about $4 billion - a fraction of the $40 billion - $60 billion cost of the original bill.
It would raise additional revenue a number of ways, including the crackdown on leasing abuses and a cut in the ethanol exemption from the gasoline tax.
Thomas' bill differs substantially from the Senate bill. For one thing, the Senate bill is projected to be revenue neutral.
For another, the Thomas bill would offer tax breaks for foreign income of US multi-national corporations. A group of House Republicans remains opposed to the bill, arguing that FSC / ETI repeal revenue should go entirely to domestic manufacturers, not to multinationals.
Nevertheless, that group has now distanced itself from other Democrats pushing for a House vote on their alternative legislation, which is closer to the Senate bill.
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