A Taxing Issue

With a tax benefit for U.S. exporters gone, Congress is scrambling to find an alternative.
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The threat of European Union trade sanctions has sparked congressional competition to cut taxes for companies that would be hurt by the loss of the extraterritorial income (ETI) regime, a tax cut for U.S. exporters the World Trade Organization recently ruled illegal.

Rep. Bill Thomas (R-CA), chairman of the House Ways and Means Committee, is pushing a wide-ranging bill (H.R. 2896) with something for businesses of every size and shape. The No. 2 Republican on Ways and Means, Rep. Phil Crane (R-IL), has joined with Rep. Donald Manzullo (R-IL), chairman of the House Small Business Committee, to introduce a rival bill more narrowly focused on helping U.S. companies that have enjoyed the tax benefits of the ETI regime.

Manzullo/Crane (H.R. 1769) drops the corporate tax rate from 35 to 31.5 percent for companies with products made solely in the United States. It helps only manufacturing companies (though of any size).

Thomas' bill-considerably more expensive and, therefore, more politically problematic-offers some uniquely small-business provisions. The most notable would cut the corporate tax rate to 32 percent for companies with revenues under $10 million. It would also extend by two years the increase from $25,000 to $100,000 that small companies can expense in a given year, mandated by the 2003 tax bill and set to expire in 2007.

Small-business groups seem to favor the Manzullo bill. Both Thomas and Manzullo are apt to reshape their packages this fall as the bills begin to move through the House. With the EU threatening to impose sanctions by the end of 2003, there's considerable pressure from business to wrap up the bills this year.

Stephen Barlas is a freelance business reporter who covers the Washington beat for 15 magazines.

Edition: June 2017

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