NCPA - National Center for Policy Analysis

Tax-Cut Bidding War

March 10, 2004

Last week, European nations slapped a 5 percent tariff on the prices of hundreds of American exports because Congress is stubbornly clinging to a special tax break for U.S. exporters. The U.S. tax break benefits fewer than one in 200 U.S. manufacturers, according to a report to the Senate last year. It violates world trade rules by letting firms sell products at artificially low prices. The tariffs are expected to hurt European sales of U.S. goods ranging from fruit grown in California to sheet-metal cabinets made in Ohio to textiles woven in the Carolinas, says USA Today.

Congress simply could repeal the tax break and use the $5 billion a year in added corporate-tax revenues the U.S. Treasury would receive to reduce a ballooning budget deficit. Instead, the law's repeal has been delayed by wrangling over how to distribute the extra taxes corporations would begin to pay:

  • Congress now is weighing special benefits for oil refiners, lumber mills, the ethanol industry and independent filmmakers.
  • Broader tax breaks would declare a partial "tax holiday" on U.S. firms' overseas profits, lower the tax rate on manufacturers and make it easier for profitable companies to avoid paying income taxes.
  • One plan approved by a House committee last fall would replace the $5 billion subsidy with $11 billion a year in other tax breaks.

House Ways and Means Committee Chairman Bill Thomas (R-Calif.), currently is trying to scale back the package to a 10-year cost of less than $4 billion.

Source: Editorial, "Subsidies put special interests above U.S. economic health," and Rep. Bill Thomas, "Ease Corporate Tax Load," both USA Today, March 10, 2004.

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