- The Washington Times - Friday, July 25, 2003

The House’s top tax lawmaker yesterday proposed a major rewrite of international tax rules and a new $120 billion, 10-year corporate-tax cut.

The proposal follows a World Trade Organization ruling that U.S. tax breaks for exports are illegal subsidies.

The 15-nation European Union, which brought the case, won the right to retaliate with $4 billion in trade sanctions and has threatened to start them Jan. 1. Lawmakers and companies are using the threat as an opportunity to rework rules and offer new tax breaks.

“If we show significant progress, I believe we can stave off that date [for retaliation],” said California Republican Bill Thomas, chairman of the House Ways and Means Committee and author of the new bill.

Mr. Thomas’ legislation splits corporate America and competes with a proposal written by Rep. Philip M. Crane, Illinois Republican, and Charles B. Rangel, New York Democrat, and co-sponsored by 134 other lawmakers.

Legislators and the Bush administration agree they must repeal the illegal tax breaks, worth about $50 billion over 10 years. But they have not agreed how to reallocate that $50 billion, who should benefit most and how to revamp Kennedy-era laws on international corporate taxes.

Mr. Thomas’ main goal is to simplify international tax law for U.S. companies that earn income abroad.

Provisions are designed to ease regulations that force companies to set up large bureaucracies or additional entities to deal with separate U.S. and foreign tax laws, end measures that effectively make companies pay taxes twice on foreign income, reduce the number of ways income has to be classified, and penalize American companies that move offshore.

The legislation also would help companies with less than $10 million in taxable income by reducing their corporate-tax rate to 32 percent, 3 percentage points lower than the current top rate. The reduction would apply to more than 99 percent of all businesses, Mr. Thomas said.

Other major incentives include a faster schedule for depreciation on equipment and improvements, and an expanded research and development-tax credit.

“This is about jobs, domestic jobs,” Mr. Thomas said.

More than 120 multinational companies, including Coca-Cola, General Motors and Wal-Mart have joined a coalition to back Mr. Thomas’ proposal.

“We support Chairman Thomas’ legislation because it recognizes the fundamental connection between international competitiveness and the ability of U.S.-based companies to preserve and create jobs for U.S. workers,” said Karen Myers, chief tax lobbyist for information-technology company EDS.

The Crane-Rangel approach would offer tax credits for companies that manufacture goods in the United States and would not add to the deficit, according to supporters.

“[Thomas and his supporters] provide a variety of tax benefits for multinational companies, and some additional unrelated tax breaks, designed to sweeten the package but which end up increasing the revenue loss of the bills,” Mr. Crane said in a statement.

Mr. Rangel said $120 billion in new corporate-tax cuts make it impossible to move the Thomas bill through Congress.

“We cannot afford that [delay] if we want to avoid a costly showdown with Europe,” Mr. Rangel said.

Companies with the bulk of their production onshore, like Boeing, Caterpillar and Microsoft, support the manufacturing tax credit in the Crane-Rangel bill.

It is not clear how the political process will unfold in the House and Senate, and which formula ultimately will be adopted by lawmakers and signed into law by President Bush.

Bush administration officials have signaled support for Mr. Thomas’ approach, but they have not formally endorsed a legislative proposal. The administration “is working closely with Congress and the business community to develop consensus on legislation,” said Treasury Department spokeswoman Tara Bradshaw.

Republican leaders in Congress, notably House Speaker J. Dennis Hastert, have offered less than a full endorsement of Mr. Thomas’ proposal.

“The speaker is aware of the legislation. His biggest concern is that as we go through this process, manufacturing jobs will be lost in America. He wants to work with Chairman Thomas to make sure manufacturing jobs do not leave the country,” said John Feehery, a spokesman for the Illinois Republican.

Mr. Hastert “likes some parts of the Crane-Rangel approach,” he added.

Sen. Orrin G. Hatch, Utah Republican, introduced a measure similar to Mr. Thomas’ in the Senate yesterday, though his bill would cost about $200 billion over 10 years.

Senate Finance Committee Chairman Charles E. Grassley has held two hearings on international corporate taxes and plans to offer his own bill, probably after the August recess.

“I welcome the ideas presented today by Chairman Thomas and Senator Hatch. I’ll consider them in constructing my broad-based, bipartisan response,” the Iowa Republican said yesterday.

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