Senate to Look at Ending Manufacturing Tax Break

Wed March 03, 2004 - National Edition

WASHINGTON (AP) Too late to prevent Europe from imposing punishing trade sanctions, the Senate is starting to work toward eliminating a tax break for American manufacturers that was declared an illegal export subsidy in world trade courts.

Senate Finance Committee chairman Charles Grassley, R-IA, tried to build momentum yesterday for the tax package in hopes of ending the offending tax break before tariffs escalate too far. He rallied business leaders at the National Manufacturers Association to help him build support.

"The whole jobs bill is slanted toward manufacturing," he said. "We have supported you, and now we ask you to support us."

The bill faces what could be an onslaught of changes by lawmakers eager to debate the state of the economy and job losses overseas.

The European Union imposed the 5 percent penalty tariff that became effective Monday as retaliation against the United States’ tax system that lets companies with a foreign presence exempt between 15 percent and 30 percent of their export income from U.S. taxes.

By allowing those exemptions, the price of the manufacturers’ goods are lowered and thus made more competitive than foreign rivals. The World Trade organization ruled three years ago that the practice constituted an illegal subsidy.

Unless the United States ends the system, the penalty tariff will ratchet up 1 percentage point each month over the next year.

Senate leaders don’t expect to finish their debate until the end of March. The House has not yet scheduled time for debate.

The Senate package cuts taxes for U.S. manufacturers to the extent they keep their production and jobs at home. All companies, whether they produce in the United States or abroad, would benefit from the tax cuts by the end of the bill’s 10-year horizon.

Senators were starting work on the bill Wednesday. Amendments ready for consideration reflected disagreement over whether to tilt the bill even more toward U.S. manufacturers, or make more tax benefits available to American multinational corporations. Some also reflected an eagerness to dive into the debate, now raging on the campaign trail, over President Bush’s economic stewardship.

Sen. George Allen, R-VA, said lawmakers sense that the tax bill may be the best opportunity before the election for Republicans to bolster Bush and for Democrats to stake out their opposition.

"This is going to be a year of ambushes," he said.

Democrats made known their intentions to use the tax bill to take on the president’s economic record and his proposed changes to the rules governing overtime pay.

Sen. Minority Leader Tom Daschle, D-SD, also wants to use the bill to require that companies moving jobs overseas give their employees three months notice. "This bill will give us a key opportunity to talk directly about jobs, how we can create them," he said.

Massachusetts Sen. John Kerry, the presumptive Democratic presidential nominee, has said he would support such a measure.

Republicans have their own ideas for changing the bill. A few fiscal conservatives want to replace the benefits targeted to manufacturers with an across-the-board rate cut for all corporations.

Tax writers also expect various lawmakers to try to remove a tax holiday for American multinationals holding profits overseas, broaden manufacturing benefits to companies with some overseas operations and delete sections devoted to streamlining international tax rules.

Republican aides warned privately that too many changes might disrupt the bill’s careful construction and its base of support among Republicans and Democrats.