Grassley, Baucus Introduce Tax Relief for Domestic Manufacturers, International Tax Reforms
WASHINGTON – Sen. Chuck Grassley, chairman of the Committee on Finance, and Sen.Max Baucus, ranking member, today introduced the Jumpstart Our Business Strength (JOBS) Act,legislation to cut taxes for domestic manufacturers and reform and simplify taxes for U.S.companies operating overseas. The legislation is meant to head off trade sanctions from Europe thatlikely would force U.S. manufacturers and agricultural producers to slice jobs.
“A hurricane is hitting the East Coast today,” Grassley said. “U.S. manufacturers and ag producers will face their own hurricane if we don’t act. Inaction probably would cost a lot of American workers their jobs. Obviously we can’t let that happen. This bill is a good solution that not only prevents Europe’s sanctions, but also gives a real shot in the arm to U.S. manufacturers and ag producers, at home and abroad."
Baucus said, “We must stop the job losses in America’s manufacturing sector. Reducingtaxes on these businesses is a critical first step to ensure our businesses compete in an increasinglyglobal marketplace. Even in our selection of international tax reforms, we have focused on thosereforms that enhance the U.S. companies’ ability to manufacture here at home.”
Grassley said, “I agree we’ve lost too many manufacturing jobs. Now isn’t the time to increase taxes on the U.S. manufacturing base. This is why every dime from FSC-ETI repeal is reinvested in tax relief for manufacturing. As a witness before the House Small Business Committee said last week, our national policy should be to export products, not jobs. That witness was fromIllinois, which just shows he’s got a lot of Midwestern common sense.”
The Grassley-Baucus JOBS Act, S. 1637, replaces a tax regime that is very important to U.S. exporters.
Grassley said the Foreign Sales Corporation/Extraterritorial Income Tax regime, in effect,lowers the rate of income tax imposed on goods that are manufactured in the United States and exported for sale in foreign markets. The purpose of FSC-ETI is to allow U.S. manufacturers to compete with European manufacturers who do not pay European Union value-added taxes (VAT) on their exports. The World Trade Organization has ruled that FSC-ETI is an impermissible export subsidy, and has authorized the EU to impose up to $4 billion a year in sanctions on U.S. exports.
Grassley said absorbing the sanctions could have a devastating effect on the U.S. economy,especially agriculture. Some U.S. exporters would suffer greatly if $4 billion in sanctions were imposed on their products. Many likely would not survive and would cut a significant number of jobs, Grassley said. The Bush administration and congressional leadership agree the United Statesshould repeal the FSC-ETI regime and replace it with new measures that are consistent with international trade rules under the WTO.
Grassley said the JOBS Act offers a permanent solution to the FSC/ETI problem andreliable, sustained tax relief for domestic manufacturers. A detailed bill summary follows.Grassley said he hopes the legislation will draw significant bipartisan support in the FinanceCommittee and plans to schedule committee consideration of the bill as soon as possible.
“U.S. businesses are under more pressure than ever in an era of expanding global markets,” Grassley said. “This bill will increase the ability of U.S.-based operations to compete with foreign competition abroad and on U.S. soil. And it’ll increase the competitiveness of U.S. operations located outside the United States. All of that means more job opportunities for American workers.”
JUMPSTART OUR BUSINESS STRENGTH (JOBS) ACT
• The bill contains domestic manufacturing tax relief and international tax reform and simplification measures.
• The bill will be revenue neutral.
• All of the proceeds from FSC-ETI repeal will be reinvested in American manufacturingtax relief.
• The international portion of the bill will be fully offset.
American Manufacturing Tax Relief
• The tax rate on income from manufacturing in the United States will be reduced by 3%,which will reduce the corporate rate from 35% to 32%.
• This relief will be available to all companies that manufacture in the United Statesregardless of , including wholly-domestic manufacturers, U.S.-based multinationalmanufacturers, foreign corporations manufacturing in the United States, S corporations,and cooperatives.
• ETI transition will be over 3 years. Rate reductions for all companies begin in 2004.
• The tax reduction is effected through a deduction equal to 9% of a company’smanufacturing income. This deduction percentage is phased in over 5 years. Deductionsbegin in 2004 and increase until the 9% amount is reached in 2009.
• In the early years, multinational U.S. companies and foreign corporations manufacturingin the U.S. will be subject to a limitation on their deduction, which will be phased out in2012, and permanently eliminated by 2013.
• See the printer-friendly version of this release for a schedule of the domestic manufacturing relief.
International Tax Reform and Simplification
The international portion of the bill contains the following reform and simplification measures.
• Extend the foreign tax credit carryforward from 5 years to 20 years.
• Apply look-through rules for dividends from noncontrolled section 902 corporations.
• Repeal the 90% limitation on the use of foreign tax credits against the alternativeminimum tax.
• Recharacterize overall domestic losses for purposes of calculating the foreign tax creditlimitation.
• Revise the interest allocation rules affecting the foreign tax credit limitation.
• Modify the foreign personal holding company income rules with respect to transactionsin commodities.
• Implement certain international tax simplification measures contained in the JointCommittee on Taxation’s report on tax simplification recommendations (JCS-3-01).
a. Repeal of rules applicable to foreign personal holding companies and foreigninvestment companies.
b. Repeal personal holding company rules as they apply to foreign corporations.
c. Include in subpart F personal service contract income, as defined under theforeign personal holding company rules.
d. Expand the subpart F de minimis rule to the lesser of 5% of gross income or $5million.
e. Attribute stock ownership through partnerships in determining section 902 and960 credits.
f. Apply uniform capitalization rules to foreign persons.
g. Eliminate secondary withholding tax with respect to dividends paid by certainforeign corporations.
h. Repeal 30% tax on certain U.S.-source capital gains of nonresident individuals.
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