Global Policy Forum

by Doug Palmer

A bipartisan group of lawmakers said Thursday they had strong support for a bill that could resolve a long-standing trade dispute with the European Union by creating a generous new tax deduction for U.S. manufacturers.

"I think we can get consensus on this legislation and get it out of committee and get the support on the floor, in the House (of Representatives) and the Senate," Rep. Phil Crane, an Illinois Republican, told reporters.

Rep. Charles Rangel, a New York Democrat, agreed, saying the bill would provide a "shot in the arm" for the manufacturing sector, which has lost more than 2 million jobs in recent years. At issue are tax breaks for some of the United States' biggest companies, including Boeing, General Electric Co, Microsoft Corp. and Caterpillar Inc..

In a case first brought by the EU in 1998, the WTO has ruled four times that the tax breaks are illegal export subsidies. But Rangel and Crane said their bill would comply with WTO rules because companies would not have to export to get the tax deduction. The current tax break is contingent on exporting.

The WTO is expected to give formal approval on May 7 to a list of slightly more than $4 billion worth of U.S. goods that could be hit with EU sanctions in the dispute. However, EU Trade Commissioner Pascal Lamy has said Brussels would not impose sanctions as long as the United States is making progress on passing legislation.

The centerpiece of the Crane-Rangel bill is a new deduction for manufacturers that would reduce their effective tax rate in proportion to how much of their production activities are done in the United States. For companies with 100 percent domestic production, the bill would reduce the corporate tax rate to 31.5 percent from the current 35 percent.

Sen. Fritz Hollings, a South Carolina Democrat, introduced a companion bill in the Senate on Thursday. By introducing their legislation first, Crane and Rangel got the jump on House Ways and Means Committee Chairman Bill Thomas, a California Republican, who has wanted to use the money saved from repealing current tax breaks to fund a number of other changes to the international tax code. A bill introduced by Thomas last year failed to attract much support. However, he plans to introduce a revised version of that bill "soon," a Ways and Means Committee spokeswoman said.

Crane said he expected Thomas to come around to the idea of a new tax deduction for manufacturers, even though he has not previously advocated that approach.

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