Mr. Speaker, I am very pleased to introduce the Jobs Protection Act of 2003, legislation which will respond to a recent World Trade Organization ruling that held that our export-related tax benefit, the FSC/ETI provision in our tax code,…
Mr. Speaker, I am very pleased to introduce the Jobs Protection Act of 2003, legislation which will respond to a recent World Trade Organization ruling that held that our export-related tax benefit, the FSC/ETI provision in our tax code, violates our trade agreements. It is my distinct pleasure to be joined in this effort by my good friends Charles Rangel and Don Manzullo.
This legislation achieves two goals: it brings the United States into compliance with the WTO, and it keeps the playing field level for our manufacturers, which will keep jobs here. I'd like to address each of those issues.
As Chairman of the Trade Subcommittee, I have a strong interest in preserving and promoting free trade throughout the world. Trade is fundamental to our relations with other nations, and free trade has been the greatest civilizing force throughout modern history. I have fought ardently for many years to ensure that the United States, which is the largest exporter in the world, maintains its rightful role as world leader when it comes to trade.
Like my colleagues who have joined me in introducing this legislation, I believe that we must comply with our international agreements. To do otherwise could precipitate a trade war, which would be an unacceptable result. Therefore, this legislation repeals FSC/ETI and brings the United States into compliance with our WTO obligations.
The issue, then, is how to best replace FSC/ETI. In recognition of the fact that the repeal of FSC/ETI raises the tax burden of current beneficiaries by at least $50 billion over ten years, this legislation returns that money to the U.S. manufacturers. In order to understand why that is so crucial to protecting our job base, it is important to understand why the FSC/ETI benefit exists in the first place.
U.S. corporations that export manufactured goods pay a 35 percent corporate tax rate on their profits. In addition, the corporation pays an additional value added tax when they it sells its products in Europe. However, European manufacturers get a portion of their VAT rebated. FSC/ETI compensates manufacturers for this double taxation, thus leveling the playing field between U.S. and European manufacturers. That means jobs stay here. Were this benefit to be repealed with no replacement, U.S. jobs and wealth would be artificially transferred to Europe. This is another unacceptable result.
Therefore, the Job Protection Act of 2003 provides a permanent new deduction, which is an effective rate reduction for U.S. manufacturers, that is consistent with our trade agreements. It is structured in such a manner as to preserve and strengthen U.S. jobs. Surely, Mr. Speaker, that is a goal we should all support!
Mr. Speaker, I would like to be clear as to the process we should follow as we debate how best to replace FSC/ETI. We have faced challenges to export-related benefits in years past. As in the past, it is my fervent belief that our common goal must be to protect the interests of the United States, not our foreign competitors. While I expect a great deal of vigorous debate as we seek to comply with our WTO obligations, I remain hopeful that we will resolve any differences in a dignified manner, not giving our opponents the benefit of a public spectacle.
A summary of the provisions of the legislation follows.
The Job Protection Act of 2003--Strengthening U.S. Manufacturing and
Addressing the WTO Challenge to FSC/ETI (April 2003)
repeal of fsc/eti
The Job Protection Act of 2003 (the ``proposal'') would
repeal the current-law FSC/ETI benefit effective for
transactions after the date of enactment.
Transition relief: The proposal would provide two types of
transition relief--
(1) Binding Contracts: The proposal would not affect
transactions pursuant to binding contracts in effect on the
date of introduction of the legislation. This provision
ensures that pre-existing arrangements of U.S. taxpayers are
not retroactively penalized merely because of the WTO ruling.
(2) General Transition Relief: The proposal also would
provide general transition relief based on the company's
average FSC/ETI benefit during 2001. A company would receive
a deduction for 100 percent of its base period amount
(indexed for inflation) for 2004 and 2005, 75 percent for
2006 and 2007, and 50 percent for 2008 (no general transition
relief thereafter). A permanent benefit for production
activities in the U.S., described below, would begin to
phase-in as the general transition relief phases out. The
general transition relief is not contingent upon future
exports and, therefore, is WTO compliant.
permanent benefit for manufacturing activities in u.s
Strengthening U.S. Manufacturing: The proposal would
provide a permanent new deduction which reduces the effective
corporate tax rate that would apply to so much of the
company's taxable income as is attributable to ``U.S.
production activities''. U.S. production activities would be
defined as the manufacture, production, growth, or extraction
of property eligible for the current FSC/ETI benefit whether
or not actually exported.
Calculating U.S. Production: The portion of the taxable
income attributable to U.S. production activities would be
calculated by computing total gross receipts from sale,
rental or license of eligible property produced in whole or
part by the taxpayer in the United States, and then
subtracting from those gross receipts inventory costs,
directly allocable deductions, and a pro rata portion of
other deductions. Allocation would be done in a manner
similar to the method used in allocating deductions between
U.S. and foreign source income.
Corporate Tax Rate Reduction: For companies with 100
percent domestic production, the effective rate reduction
would be 3\1/2\ points (35 percent corporate tax rate reduced
to 31\1/2\ percent) once fully phased-in. Other companies
would receive a sliding-scale effective rate reduction based
on the value of their U.S. production of eligible products
compared to the value of their worldwide production.
revenue neutral
The bill has been structured to be roughly revenue neutral
year-by-year and over the 10-year budget period. The proposal
does not include any extraneous revenue offsets.