Senate Export Tax Break Deal Advances
Next move on FSC / ETI regime anticipated when Senate returns from recess
WASHINGTON, DC - 04/13/04 - Senate leaders have taken a step toward passing a stalled bill aimed at repealing export tax breaks ruled illegal by the World Trade Organization.
Last Thursday, Senator Bill Frist, the Senate Republican majority leader, said he had reached a deal with Democrats cutting the number of amendments that might be offered during debate from about 150 to about 77.
The Senate then went into recess until April 19. Upon their return, Frist said, senators should reach further deals to have a manageable number of amendments for consideration.
"The agreement we entered into is to define the universe of amendments, and I would expect and encourage the managers to continue to work to whittle down that list appropriately," Frist said on the Senate floor. "I expect them to do so?"
A Senate Republican aide predicted that eventually senators would agree to limit the number of amendments to 8 to 10 each for Republicans and Democrats.
By all accounts the underlying bill to repeal the illegal export tax breaks and replace them with other corporate tax breaks and reforms has wide bipartisan support in the Senate.
At issue are two US laws that the WTO has ruled are illegal export subsidies: the decades-old Foreign Sales Corporation (FSC) and its successor, the Extraterritorial Income Act (ETI).
The WTO authorized the European Union to impose sanctions amounting to $4 billion a year on US imports in retaliation for noncompliance. On March 1, the EU began imposing tariffs of 5%, raised them to 6% April 1 and is prepared to increase the level by one percentage point a month up to 17% - still just a fraction of what the WTO ruling allows.
The Senate bill's original 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 also would close abused loopholes in the tax regime, in line with Treasury Department recommendations, including some infrastructure-leasing deals widely regarded as deceptive.
Despite adding many more tax breaks into the bill to attract support - including energy tax breaks valued at about $14 billion a year - Senate Republican leaders had failed twice by wide margins to get the 60 votes needed to limit debate on the bill.
With the April 8 agreement Democrats will get a chance, as they demanded, to vote on an amendment that would halt a Bush Administration proposed regulation eliminating overtime pay protection for perhaps millions of white-collar workers.
About 30 of the 77 amendments remaining were put forward by Democrats. The rest come from Republicans, including 20 from Senator John McCain, who aims to block many of the energy tax breaks lately added to the bill.
Even if the Senate manages to pass the bill in April or May, the outlook for final passage remains far from clear because of division among Republicans in the House of Representatives over the House version of the bill.
After the second vote to limit debate in the Senate failed April 7, the White House issued a statement urging immediate passage of the bill.
"The Senate today missed another opportunity to pass FSC/ETI legislation to reform the tax code and remove the underlying reason for the sanctions that have been imposed by the European Union on US manufacturers, farmers, and other job creators," the White House said.
"The Senate's failure to act means that American workers and businesses will continue to be penalized by these sanctions. The sooner Congress acts to address this issue, the sooner these burdensome sanctions will be lifted. We urge immediate action."
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