/javascript" src="../static/js/analytics.js"> CalTrade Report - Finally…Capitol Hill Action on Export Tax Breaks California, CalTrade Report, Extraterritorial Income Act, World Trade Organization, - Finally…Capitol Hill Action on Export Tax Breaks - New legislation on the FSC-ETI regime could ease transatlantic trade tensions CalTrade Report Asia Quake Victims 10/07/04 – After months of inaction, a House-Senate conference committee has crafted a bill to replace the tax mechanism with a combination of tax incentives aimed at helping US manufacturers and reinstate the deductibility of state sales taxes on individuals' federal income tax returns; the World Trade Organization had rules several times that the FSC-ETI provisions violate international trade rules and in March authorized the EU to impose up to $4 billion a year in retaliatory tariffs on US exports. - 10/07/04 – After months of inaction, a House-Senate conference committee has crafted a bill to replace the tax mechanism with a combination of tax incentives aimed at helping US manufacturers and reinstate the deductibility of state sales taxes on individuals' federal income tax returns; the World Trade Organization had rules several times that the FSC-ETI provisions violate international trade rules and in March authorized the EU to impose up to $4 billion a year in retaliatory tariffs on US exports. - Finally…Capitol Hill Action on Export Tax Breaks California, CalTrade Report, Extraterritorial Income Act, World Trade Organization, - Finally…Capitol Hill Action on Export Tax Breaks

 

September 29, 2005

 

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Finally…Capitol Hill Action on Export Tax Breaks

New legislation on the FSC-ETI regime could ease transatlantic trade tensions

WASHINGTON, DC- 10/07/04 - Congressional negotiators have hammered out a major piece of legislation that could go a long way in easing the increasingly strained trade relations between the US and the European Union (EU).

The underlying goal of the new legislation is the resolution of a longstanding dispute with the EU over US tax breaks to exporters under the Foreign Sales Corporation (FSC) law, and its successor regime, the Extraterritorial Income Act (ETI).

The WTO has repeatedly ruled that FSC-ETI provisions violate international trade rules and authorized the EU to impose up to $4 billion a year in retaliatory tariffs on US exports.

The EU began in March to impose tariffs of 5% on a wide range of US-made products and said the rate would increase by 1 percentage point a month up to 17%.

As of October 1, the tariff rate had reached 12%.

The 633-page measure approved by the conference committee takes the $57.7 billion saved over 10 years by eliminating the export subsidy and uses that money to help provide more than $130 billion in new tax breaks.
 
The biggest break is a deduction that would cost $76.5 billion over 10 years and help US manufacturers with manufacturing broadly defined to include construction companies, as well as engineering and architectural firms.
 
The bill would reinstate the deductibility of state sales taxes on individuals' federal income tax returns. This plan is popular in the seven states that do not have state income taxes but do have state sales taxes - Florida, Nevada, South Dakota, Tennessee, Texas, Washington, and Wyoming.

In addition, the legislation will allow for local sales taxes to be deducted from federal returns, a provision that will help residents of the seven states who pay local sales taxes and also aid residents of some areas of Alaska, who pay local sales taxes but have no state sales tax.
 
A House-Senate conference committee went back to work on the bill on September 29 after months of inaction,

Conference chair Representative Bill Thomas (R-California) released the latest draft late Monday, just ahead of tomorrow's scheduled Congressional recess.

According to sources, a House vote could possibly come today.
 
In order to secure passage in the House of an earlier version of the bill, Thomas included a $10 billion buyout of quotas held by tobacco-growing farmers for decades but no longer profitable.

The new legislation passed muster after negotiators rejected a Senate plan that linked the buyout to allowing tobacco regulation by the Food and Drug Administration - a move that effectively blocked efforts by Sen. Edward Kennedy (D-Massachusetts) and Sen. Tom Harkin (D-Iowa) to include the FDA regulation in the compromise bill.
 
Thomas' latest draft included the Senate-passed buyout provision, which would require the tobacco industry to pay the cost of the buyout, but does not include the FDA regulation provision.

The revised bill also appears to have dropped the provisions of earlier bills that are opposed by the Bush Administration.

One would have offered international corporations temporary slashed tax rates for repatriating foreign income now held abroad while another would have repealed a new Labor Department regulation on overtime pay.

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