18 October 2004 00:01 [Source: ICB Americas]
The Senate gave final congressional approval last week to a corporate tax reform bill that seeks to end a trade dispute with the European Union (EU) by repealing US export tax subsidies that violate global trade rules.
The Senate vote follows passage of the measure a week earlier by the House of Representatives, and clears the way for the bill to be sent to the White House. President George W. Bush has indicated he will sign it.
The legislation repeals a $5 billion annual subsidy for US exporters—known as foreign sales corporations or FSCs—ruled illegal by the World Trade Organization (WTO) and lowers tax rates for domestic manufacturers to 32 percent from the top corporate rate of 35 percent. The former FSC regime saved chemical exporters about $250 million a year in taxes.
Supporters say the bill will create jobs. Senator Max Baucus (D-Mont.), who helped draft the measure, says 200,000 US manufacturing firms would benefit.
The National Association of Manufacturers (NAM) welcomed the bill’s passage. “The Senate’s action, approving by a vote of 69 to 17 the American Job Creation Act of 2004, comes as a welcome relief to manufacturers and will give our economy a boost,” says NAM executive vice president Michael Baroody.
“European tariffs on more than 1,600 US products have reached 12 percent and could go as high as 17 percent,” Mr. Baroody noted. “The NAM expects that in response to this legislation, the EU will lift those tariffs.”
In addition to removing the export tax provisions that the EU objected to, the bill includes numerous other tax measures intended to benefit business and encourage job creation.
“Manufacturing has recently begun an energetic recovery,” Mr. Baroody remarked. “We are pleased that Congress and the administration are working to get the job done and make certain the recovery continues.”
The $140 billion cost to the Treasury in new business tax breaks in the bill was offset by repealing the export subsidies, closing some corporate tax shelters and other revenue-raising measures.
The bill also includes tax breaks for US multinational corporations, some of which critics say will encourage companies to ship jobs overseas. A one-year tax holiday for multinationals was included that will allow them to return billions of dollars in profits back to the US at a dramatically lower 5.25 percent rate instead of the normal 35 percent top corporate rate.
The final, 633-page bill also substantially overhauls the fuel excise tax system by ensuring that every gallon of gasoline or gasoline blended with ethanol contributes a full 18.4 cents to the Highway Trust Fund.
Senate Finance committee chairman Charles Grassley (R-Iowa) said enactment of this provision will generate an estimated $18.9 billion in new Highway Trust Fund revenues over the next six years—more than $3 billion per year.
The legislation also extends existing ethanol production tax incentives until 2010 and clarifies that the small ethanol producers tax credit can flow through to the patrons of the cooperatives.
Ethanol producers have built 81 plants and created 150,000 new jobs, including 12,000 manufacturing jobs. In 2004, the industry expects to add more than 22,000 new jobs, according to a statement by Senator Grassley.
Another proposal added to the bill will create a new income tax credit and excise credit for biodiesel fuel mixtures. Unlike the incentives to produce ethanol for use as a highway motor fuel, under present law, no income tax credit or excise tax rate reduction is provided for biodiesel fuels.
Senator Grassley said the new incentives would encourage the production of biodiesel, a clean-burning alternative fuel made from domestic renewable sources, such as soybean oil. The tax incentives apply to biodiesel made from corn, soybeans, sunflower seeds, cottonseeds, canola, crambe, rapeseeds, safflowers, flaxseeds, rice bran, mustard seeds, or animal fats. The excise tax credit is for biodiesel used as highway motor fuel.
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