- The Washington Times - Tuesday, September 5, 2000

House Ways and Means Committee Chairman William Archer, in league with the Clinton administration, has successfully led a bipartisan, "good faith" endeavor to maintain corporate welfare for U.S. exporters. Thanks to their efforts, exporting firms will continue to benefit from a windfall in tax savings, while other taxpaying corporations and individuals will be forced to shoulder a greater share of America's fiscal burden.
On July 27, after months of secret labor and close consultation with the administration, the Ways and Means Committee released a bill to reform a 30-year old law of Byzantine complexity, which essentially gave exporting companies a subsidy through tax breaks. The corporate deduction was known as the Foreign Sales Corporation (FSC) deduction.
The FSC was the brainchild of President Nixon, who also brought Americans very misguided and now defunct price-fixing policies. U.S. policy-makers should have repealed the FSC long ago. The legislation benefits foreign consumers, since exporting corporations are able to sell their products abroad at reduced cost. Of course, the U.S. taxpayer must pick up the tab for this subsidy.
Even worse, the FSC has a negative impact on other U.S. industries. The legislation is bad for U.S. corporations that must compete with imported goods, since they don't benefit from similar tax deductions. The Congressional Budget Office said in an April 1999 report that "Investment and employment in import-competing industries in the U.S. declined about as much as they increased in the export industries."
Now, ironically, the FSC threatens to hurt U.S. exporters. The European Union has challenged the legislation at the World Trade Organization (WTO), maintaining that it creates unfair market distortions favoring U.S. exporters, at the cost of European Union exporters. The WTO ruled against the United States last year, a decision that was appealed by the Clinton administration. The appeal was overturned and now the United States has until October to comply.
The Ways and Means Committee's reform of the FSC deduction will probably not satisfy the WTO. In fact, rather than get rid of the FSC, the committee voted 34 to 1 to expand the tax break. In consequence, the European Union will probably be entitled to retaliate against $4 billion in U.S. exports through 100 percent tariffs.
The Ways and Means Committee boasts that support for its revised FSC bill was bipartisan and near unanimous. It remains a bipartisan and near unanimous blunder. Yes, tax breaks are essential to energizing the economy and keeping government cost-effective. But how about structuring them so that they benefit corporations and taxpayers equally?

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