Baucus Leads Debate on Manufacturing Tax Relief Bill
Senator Urges Speedy Passage of JOBS bill, Need to Halt EU Sanctions
(WASHINGTON, D.C.) As a bill to provide tax relief to domestic manufacturing moves to theSenate floor today, U.S. Senator Max Baucus pushed for speedy passage in order to help manyof the country's manufacturers keep their doors open and to halt European Union (EU) sanctionsthat went into effect on March 1 against many U.S. goods.
The "Jumpstart Our Business Strength" Act -- also known as the JOBS bill -- is a jointproduct of Senate Finance Committee Chairman Chuck Grassley and Ranking Member MaxBaucus and will provide a 9 percent tax deduction to companies who produce goodsdomestically. The bill passed out of the Finance Committee by a 19 to 2 vote.
"We've put together a good bill that will provide tax relief to America's manufactures -- asector that has been hard hit in recent years," Baucus said. "We're approaching the 43rd straightmonth of manufacturing losses and need to stem the tide. There are about 400,000 manufacturingplants in the U.S. and manufacturing makes up 25 percent of my state of Montana's economicbase. This bill will provide tax relief to all of them -- we must pick up the pace and get itpassed."
Baucus emphad the need for the JOBS bill to quickly pass both the Senate and Houseand be signed into law in order to halt EU tariffs that went into effect March 1. The Grassley-Baucus manufacturing legislation would replace the Foreign Sales Corporation/ ExtraterritorialIncome (FSC/ETI) tax regime, which has been ruled as an impermissible export subsidy by theWorld Trade Organization. FSC/ETI was originally implemented in order to help U.S.manufacturers compete with European manufactures that do not pay EU value-added taxes ontheir exports. The tax relief in the JOBS bill is not export-dependant, so all manufacturers willbecome eligible for tax relief, not just those who export goods, as is the case under FSC/ETI.
"The EU sanctions are knocking on our door and companies are beginning to feel theeffects of the tariffs. The JOBS bill passed out of the Finance Committee by a strong 19-2 voteand I expect we'll see the same level of support on the floor. We must move quickly towardpassage to provide the nation's hard working men and women in manufacturing with relief."
Baucus today laid out his three principles for the JOBS bill as it moves through Congress:
Principle # 1: The JOBS bill must remain completely offset.
Principle # 2: All proceeds from the repeal of FSC/ETI must go to domestic manufacturing.
Principle # 3: The anti-tax shelter offset must remain in the bill. The JOBS bill is not simply"paid- for," but it's paid for in a way that will crack down on abusive tax shelters and help restoreconfidence in corporate America.
On the Senate floor today, Baucus began a series of speeches he will give throughout thedebate on the JOBS bill, focusing on the state of America's economy. Additional topics willinclude "o ffshoring" - the loss of U.S. jobs due to companies moving resources or jobs overseas,the significant benefits the JOBS bill provides America's small businesses, the strong anti-taxshelter provisions that help finance the bill.
Floor Statement follows, as well as two-page fact sheet on JOBS bill:
The JOBS Bill
Floor Statement of
Senator Max Baucus
March 3, 2004
Mr. President, let me discuss what this JOBS bill is about. This bill, which the FinanceCommittee reported last November, is something that we simply must pass. And I hope to see itenacted into law as soon as possible.
This bill is important for three reasons. It will cut taxes for domestic manufacturers. Itwill simplify taxes for American companies operating overseas. And it will bring us intocompliance with an unfavorable ruling by the World Trade Organization.
The JOBS bill reduces the tax rate for domestic manufacturers by 3 percentage points.
The JOBS bill will help all manufacturers who produce goods in the United States. Cutting taxesfor domestic manufacturers will help prevent layoffs. And it will help preserve jobs.As we all know, this country has lost 3 million manufacturing jobs since July 2000.When I talk to manufacturers in my state of Montana, they tell me that the rising cost of doingbusiness is their biggest problem. By cutting the cost of doing business, this bill will helpalleviate job loss.
This bill helps small businesses as well as larger businesses. The tax code treatsdifferent kinds of businesses differently. C-corporations are companies that exist as a separateentity from their owners, limiting the owners’ liability. Sole proprietorships and partnershipsare businesses where the owners of the business are fully liable for its debts. S-corporations aresmaller businesses that are incorporated for liability purposes, but taxed like a partnership. SCorporations,partnerships, and sole-proprietorships are collectively known as “pass-throughentities.” These are generally smaller businesses, while C-Corporations are larger concerns.
We have extended this tax relief to all businesses, including the smaller pass-throughentities. Nearly three fourths of the manufacturers in this country are S corporations,partnerships, or sole proprietorships. And about three quarters of all new jobs are created atthese small businesses.
Our smaller businesses — the backbone of my state’s economy and of the nation’seconomy— deserve tax relief just as much as larger businesses. In addition, by includingpartnerships and sole proprietorships, more of our agriculture producers will become eligible forthis tax relief.
The JOBS bill also includes long overdue international tax reform. We want to makesure that our US companies are competing on equal ground with rivals from other countries.One way to do that is to limit double-taxation. When our companies are taxed twice, that makesthem less competitive. We have included international tax simplification and reform provisionsthat will help American companies to compete with foreign companies overseas.
A number of provisions will help companies better utilize foreign tax credits. Foreign taxcredits prevent income from being taxed twice. There is a repatriation provision that encouragescompanies to bring back overseas profits for investments in the U.S. There is also a provisionthat will ease the tax compliance burden for small businesses looking to gain access to overseasmarket. These worthwhile policy measures restore fairness and integrity to our tax system.
This bill repeals the FSC/ETI laws to bring us into compliance with our WTOobligations. Our bill replaces a tax incentive that was dependant on exports with a tax incentivethat is not dependant on exports. Our bill will partially offset the loss of tax benefits to U.S.exporting companies from the repeal of FSC/ETI. And it will also provide benefits to allAmerican manufacturers. It will provide a needed boost for this important sector.
The JOBS bill is completely paid for. Repealing the old FSC/ETI regime will cover mostof the cost of the new tax incentive. International provisions are paid for with offsets that curbabusive tax shelters. In the face of record deficits, paying for tax cuts is the responsible thing todo.
While we should strive to keep this bill paid for, it is even better when those offsets arepositive in and of themselves. The offsets in this bill are good tax policy, as well as revenueraisers. The best example of this is the set of provisions that shuts down abusive tax shelters.Making the tax system more fair for honest taxpayers by cracking down on cheaters would begood policy even if it didn’t prevent this bill from cont ributing to the deficit.
Mr. President, in formulating this legislation, I have been guided by 3 principles that Ithink can guide us toward the swift enactment of a sound piece of law. These are thefundamentals of this bill as it was passed by the Finance Committee. They are things that areessential to this bill accomplishing what it was intended to do. I urge all my Colleagues to keepthese principles in mind as we consider this bill:
First, this bill must be fully offset.
Second, all the revenue from the repeal of FSC/ETI must go to domestic manufacturing.Third, the bill must include the package of provisions to stop abusive tax shelters.These principles are the foundation that the rest of the bill is built on. They are at theheart of what makes this a good piece of legislation. I would like to take a little closer look ateach of them, and talk about why they are so important.
The first principle: The bill must be fully offset. This is a principle that I know many ofus are concerned about on every item that comes through the Senate. The deficit is at a recordhigh. We are looking at a $521 billion dollar deficit this year. We know that those deficitestimates grow larger when we look at things realistically. For example, if we want to look atthings realistically, we have to include the costs of wars abroad, the costs of making expiring taxcuts permanent or providing AMT relief, and the costs of paying for services once the babyboom generation starts to retire. When we examine the numbers honestly, we are looking at hugedeficits as far as the eye can see. That is not responsible. That is not good policy. That is notgood for America.
This is a bill that has some very good provisions to help create jobs, and to help oureconomy. But we would undermine those benefits if we let this bill get out of control andincrease the deficit even more. Continued high deficits will raise interest rates and have anegative impact on the economy. Worsening the deficit could undo the economic good that thisbill can achieve.
I know that there are a lot of very good ideas out there about how to improve the taxcode. I know that my Colleagues have many amendments that they would like to offer. Many ofus have been working hard to generate ideas on ho w to spur the economy, to help keepmanufacturing jobs in America, and to reform international taxes.As we consider these ideas, I urge my Colleagues to keep in mind this principle of deficitneutrality. We all want to make this bill as good as possible, and the best way to make it good isto keep it revenue neutral.
The second principle: All the revenue from the repeal of FSC/ETI must go to domesticmanufacturing. We need to keep our manufacturing sector strong. But we have lost 3 millionmanufactur ing jobs since 2001. And there is little sign that this trend is reversing itself. Themanufacturing sector needs a shot in the arm, and this bill is a chance to do it.The administration has said that sending jobs overseas is good for America. I disagree.We need to target tax relief to the sector that needs it most. Manufacturing jobs are good jobs.And we need to do everything we can to keep them here. This principle establishes a floor onwhat we should be doing to help the manufacturing sector. At the least, the money fromFSC/ETI should go to the manufacturers’ deduction, not to tax cuts for internationalcorporations.
This is not solely because the manufacturing sector needs the help. Manufacturers are theones who benefited from FSC/ETI. Reducing the tax rate for manufacturers will help ease theburden of losing FSC/ETI benefits. It will also give a boost to the small manufacturers who maynot have been getting any help from FSC/ETI. Those small businesses are the engine of jobcreation.
It is important that we replace the export-based FSC/ETI subsidies with a deduction formanufacturing that is not dependent on exporting. But that is the bare minimum of what weshould be doing. This bill is not all that we can do to help manufacturers. To the extent that wecan find additional revenue to do it, we should be finding ways to make this bill even better forthe manufacturing sector. But we should commit to this principle, right from the start: At thevery least, the FSC/ETI money should go toward the tax deduction for the manufacturing sector.
The third principle: The Tax Shelter Package must be part of this bill. This is a packagethat raises revenue, and helps keep the bill revenue neutral. More important, though, is that thispackage will cut down on the abuse of our tax system. Honest taxpayers should not be leftholding the bag because someone else came up with an elaborate way of cheating the system.By cutting down on abusive schemes, we will send a message to the hardworking, honest peoplethat make up the majority of taxpayers. We are telling them that nobody is going to get a freeride, leaving the honest people paying more than their share.
It is long past time to stop abusive tax shelters. The Senate recognizes that, as we havepassed the tax shelter package again and again, but have yet to see it become law. The JOBS billbefore us today is a must-pass bill. And I think it is our best chance to get the shelters packageacross the finish line. That is why it is essential that the bill that leaves the Senate floor has theshelters package in it. Those three principles are all built into the bill that we voted for in theFinance Committee, 19 to 2. We need to make sure that they remain the focus of the bill.
It is important that we enact this bill quickly. The deadline for EU sanctions has alreadypassed. The longer we wait, the worse those sanctions will get. That is one reason why weshould stick to the heart of the matter. We can’t afford to allow this bill to get bogged down withextraneous issues. We need to keep this bill focused, so that it can move forward quickly, gethelp to the manufacturing sector, and end the EU sanctions before they cause even more joblosses.
By enacting this bill, we can help our domestic manufacturers without adding a nickel tothe Federal deficit. I say to my Colleagues in both the House and Senate: Let’s get the “JOB”done.###
Fact Sheet: JOBS Bill Summary
"Jumpstart Our Business Strength"
U.S. Senator Max Baucus
Ranking Member, Committee on Finance
§ The Jumpstart Our Business Strength (JOBS) Act, S. 1637, will provide tax relief to thenation's domestic manufacturers in order to strengthen the economy and assist themanufacturing sector, which is facing 43 straight months of job losses. The bill will alsoallow America to live up to its international obligations by repealing the Foreign SalesCorporation/Extraterritorial Income Act (FSC/ETI) tax regime, which has been ruled againstby the World Trade Organization.
§ The JOBS Act also includes long over-due internationa l tax reform. International taxsimplification and reform provisions have been included that will help American companiescompete with foreign companies overseas.
§ The U.S. Senate Finance Committee-passed JOBS Bill, crafted by Finance CommitteeChairman Charles Grassley and Ranking Member Max Baucus, is completely paid for,mainly through anti-tax shelter legislation.
Senator Baucus has laid out three guiding principles as the JOBS bill moves forward in Congress:
Principle # 1
The Finance Committee-passed JOBS bill is fully offset and the final bill must remain that way.
Principle # 2
All proceeds from the repeal of FSC/ETI must go to domestic manufacturing.
Principle # 3
The anti- tax shelter offset must remain in the bill. The JOBS bill is not simply "paid- for," but it'spaid for in a way that will crack down on abusive tax shelters and help restore confidence incorporate America.
§ The JOBS bill will permanently cut the tax rate by 3 percent for companies that producegoods domestically. The 3% tax reduction is effected through a deduction equal to 9% of acompany’s domestic manufacturing income and is phased in over 5 years (2004-2008).Deductions begin in 2004 and increase until the 9% amount is reached in 2009.
§ FSC/ETI will be repealed, with current FSC/ETI beneficiaries receiving a three-year phaseout of base year 2002 FSC/ETI benefits. The phase out is 80% of 2002 FSC/ETI benefits in2004 and 2005, and 60% in 2006.
§ All of the proceeds from the FSC/ETI repeal ($56 billion over 10 years) will be used formanufacturing tax relief.
§ This relief will be available to all companies that manufacture in the United Statesregardless of .
Eligible companies include:
Wholly domestic manufacturers,
U.S.-based multinational manufacturers,
Foreign corporations manufacturing in the United States,
Partnerships, and Agricultural and horticultural cooperatives.
Multinational Corporations (MNCs)
§ The JOBS bill includes a foreign domestic haircut for MNCs that will be permanentlyphased out beginning in 2010. A MNC will receive a reduction in its deduction amountequal to the ratio of its domestic production to its world wide production:Deduction = 9% ´ Domestic Production Income ´ Domestic Production IncomeWorld wide Production Income
Definition of manufacturing:
§ The definition of manufacturing under the JOBS bill is any tangible personal property,computer software, film, video and sound recordings which is manufactured, produced,grown or extracted in the United States.
Services and products integral to the delivery of services, Electricity and all other utilities, Water supplied by a pipeline,Certain books, magazines and newspapers.
Senate Finance Committee
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