The Senate on October 11 finally approved by a 69 to 17 vote a bicameral agreement (H.R. 4520) to replace the extraterritorial income exclusion with a revenue-neutral package that includes a manufacturing deduction, a corporate rate cut, and international tax reforms.

The bill completes two years of work to repeal the ETI Act, which was deemed illegal by the World Trade Organization, and suspend sanctions imposed by the European Union on some U.S. exports. The House approved the nearly $140 billion gross tax cut bill on October 7 by a vote of 280 to 141.

Although a Senate filibuster kept the Senate in the Capitol in a rare weekend session, Senate Finance Committee Chair Charles E. Grassley, R-Iowa, considered the final product balanced.

“This is a bipartisan bill that reflects everyone’s concerns, both Republican and Democrat,” Grassley said.

After the final vote the Senate was expected to turn to a proposal by Sen. Mary Landrieu, D-La., to create a tax credit for companies that continue to pay National Guard reservists who are activated. Landrieu held up H.R. 4520 for days over objections that conference negotiators had not included the credit in the final bill before a deal was struck to move the credit proposal separately and free the corporate tax cut from filibuster.

...Congress is poised to pass the largest corporate tax cuts in more than a decade after Senate and House negotiators on Wednesday agreed on legislation that would cut taxes on a range of US manufacturing companies and could help end European tariffs on some US products...

...The bill, which would provide about $137bn of new tax breaks to businesses, is aimed at ending a festering trade dispute with the European Union over US export tax subsidies. The subsidies, which the World Trade Organisation said violated global trade rules, had led to punitive EU tariffs against some US goods....

...In recent months the bill has been loaded up with a variety of targeted tax breaks in an effort to attract sufficient support from lawmakers. The Bush administration denounced the legislatio.n this week as "a myriad of special interest provisions that benefit few taxpayers" but Mr Bush is still expected to sign the bill if passed by Congress.

...While passage of the bill should help ease the European trade sanctions, which reached 12 per cent this month on $4bn worth of US imports, the EU has signalled that it may leave the sanctions in force to punish Boeing after the US yesterday filed a WTO case against alleged EU subsidies for Airbus.

The House is expected to appoint conferees to export tax repeal legislation (H.R. 4520) as soon as the morning of Sept. 29, a senior Senate GOP leadership aide said late Sept. 28, pending the outcome of "one last round of conversations."

Both Grassley and Thomas told reporters Sept. 22 that completion of the middle class tax relief conference will allow lawmakers to shift their focus to negotiations on a bill (H.R. 4520) to replace the U.S. export tax regime.

House Ways and Means Committee Chairman William Thomas (R-Calif.) Sept. 28 would not confirm precisely when the House will appoint its negotiators, but said, "Tomorrow is better than today." He did say that, when conferees are named, that will be "a clear signal" that the conference is ready to start and is expected to take a short time.

The start of the conference signals a down-to-the-wire effort to do away with the FSC [foreign sales corporation] and Extraterritorial Income Exclusion Act, ruled an illegal export tax subsidy by the World Trade Organization in 2002. As of Sept. 29, lawmakers will have just eight days to get the House and Senate versions of the bill through conference before the Senate is expected to adjourn Oct. 8.

...Manzullo Backs Senate Version

In a related development, House Small Business Committee Chairman Don Manzullo (R-Ill.) Sept. 28 urged House and Senate conferees on the corporate tax bill to include the Senate-passed version of domestic manufacturing tax relief in the legislation, which he said would help a broader range of businesses than the House version of the measure.

"Large and small manufacturers received the FSC-ETI benefits we are about to eliminate, and they should both receive benefits from the replacement bill. I strongly urge the conferees to adopt the Grassley-Baucus method of providing the tax benefit to all manufacturers," Manzullo said.

"Small businesses are America's job creators, providing 75 percent of all net new U.S. jobs each year. As our economy rebounds, the last thing we should be doing is raising taxes on the employers who have the ability to put the most Americans to work," Manzullo said.

...Focus Now Shifts to Export Tax Conference.

Both Grassley and Thomas told reporters Sept. 22 that completion of the middle class tax relief conference will allow lawmakers to shift their focus to negotiations on a bill (H.R. 4520) to replace the U.S. export tax regime.

More than 400 companies and trade associations Sept. 14 urged President Bush to take action to speed the process, in a final version of a letter first obtained by BNA Sept. 13 (177 DTR G-9, 9/14/04).

Thomas said he is hopeful that House Speaker J. Dennis Hastert (R-Ill.) will name conferees to that bill as early as Sept. 23, allowing conference negotiations to begin the week of Sept. 27.

Meanwhile, Grassley said he hopes that once the middle class tax relief package reaches the president’s desk, the White House will shift its focus to completion of the foreign sales corporation bill.

"Now that we have delivered what the White House wants on marriage penalty, and on child credit, and on the 10 percent bracket, asking the White House to fulfill their commitment to me that was made in July that just as soon as we move this, they would help us with FSC. I want a strong statement from the White House that they want a FSC bill," Grassley said.

A senior GOP leadership aide told BNA Sept. 14 that both Grassley and House Ways and Means Committee Chairman William Thomas (R-Calif.) continue to be in active discussions to try to move the process forward. He said a decision on House conferees could come late Sept. 14 or early Sept. 15...

Companies Call for Action

More than 400 companies and trade associations Sept. 14 urged President Bush to take action to speed the process, in a final version of a letter first obtained by BNA Sept. 13 (177 DTR G-9, 9/14/04).

The letter called on Bush to take a more active role in the effort to do away with the FSC [foreign sales corporation] Repeal and Extraterritorial Income Exclusion Act. The measure was ruled an illegal export subsidy by the World Trade Organization in early 2002.

Retaliatory sanctions against some U.S. exports are already at 11 percent, and could rise as high as 17 percent by March 2005 if Congress does not act.

The Coalition for Fair International Taxation, a group of 26 large U.S.-based multinationals which joined in signing the letter, Sept. 14 said "millions of American workers whose jobs depend on the ability of U.S.-based global employers to serve consumers worldwide are counting on Congress and the president to enact this legislation by the end of the year."

C-FIT called H.R. 4520 "a prime opportunity to help the American worker compete and continue to help fuel our nation's economic recovery."

The Senate late May 10 reached a deal to proceed on must-pass legislation (S. 1637) to repeal the U.S. export tax regime and could finish the bill as soon as May 11, key lawmakers said.

Senate Majority Leader Bill Frist (R-Tenn.) said Republicans reached a deal with Democrats to move forward with a May 11 cloture vote on the bill. The cloture vote will take place first, followed by a vote on a controversial amendment from Sen. Maria Cantwell (D-Wash.) to extend federal unemployment insurance benefits, regardless of whether the cloture vote succeeds, Frist said.

If cloture is invoked, as is expected under the last-minute deal, the Senate then will move to germane, tax-related amendments, Frist said. Once that stage is reached, swift progress is expected, lawmakers said.

"What we've done here is extremely important," Sen. Harry Reid (D-Nev.) said on the Senate floor, speaking for Democratic negotiators. "I think we can finish the bill tomorrow."

The action would mark a significant step forward in the efforts of Congress to repeal the Extraterritorial Income Exclusion (ETI) Act. The measure was ruled a prohibited export subsidy by the World Trade Organization in 2002.

Legislation (S. 1637) to repeal the U.S. export tax regime could return to the Senate floor for yet another attempt at passage within "several days," Senate Majority Leader Bill Frist (R-Tenn.) said April 22.

The Senate will first take up a bill (S. 150) to extend the now-expired Internet tax moratorium, with action expected as soon as April 26, Frist said on the Senate floor (see related report in this issue ). But legislation to repeal the Extraterritorial Income Exclusion (ETI) Act is expected to be next on the Senate's agenda, he said.

That point, Frist said, is expected to take several days to arrive. The development came the same day Sen. Frank Lautenberg (D-N.J.) said he wants to attach an amendment preventing foreign subsidiaries of U.S. corporations from doing business in countries that support terrorism.

Senate Finance Committee Chairman Charles Grassley (R-Iowa) April 22 said he believed the must-pass tax legislation could reach the floor May 3. "We're working toward the capability of bringing it up a week from Monday [April 26]," Grassley told BNA.

WASHINGTON, DC - 04/13/04 - Senate leaders have taken a step toward passing a stalled bill aimed at repealing export tax breaks ruled illegal by the World Trade Organization.

Last Thursday, Senator Bill Frist, the Senate Republican majority leader, said he had reached a deal with Democrats cutting the number of amendments that might be offered during debate from about 150 to about 77.

The Senate then went into recess until April 19. Upon their return, Frist said, senators should reach further deals to have a manageable number of amendments for consideration.

"The agreement we entered into is to define the universe of amendments, and I would expect and encourage the managers to continue to work to whittle down that list appropriately," Frist said on the Senate floor. "I expect them to do so."

A Senate Republican aide predicted that eventually senators would agree to limit the number of amendments to 8 to 10 each for Republicans and Democrats.

By all accounts the underlying bill to repeal the illegal export tax breaks and replace them with other corporate tax breaks and reforms has wide bipartisan support in the Senate....

Progress on must-pass legislation (H.R. 2896, S. 1637) to repeal the U.S. export tax regime remained stalled in both houses April 2 with Congress poised to go on recess, although Senate GOP leaders expressed some hope the Senate might be able to act the week of April 5.

Senate Majority Leader Bill Frist (R-Tenn.) late April 1 indicated it is possible S. 1637 could come up that week and called on lawmakers to act as soon as possible on the Jumpstart Our Business Strength (JOBS) Act.

"I will continue to hold out hope we will be able to finish the JOBS bill," Frist said on the Senate floor. "We must move expeditiously. It is a priority for the Senate and we will have an opportunity next week to speak on this bill."

His comments came the same day European Union tariffs on a wide array of U.S. products rose from 5 percent to 6 percent in the absence of congressional action to get rid of the Extraterritorial Income Exclusion (ETI) Act

A Treasury Department official indicated March 26 that he believes Congress might not be able to complete action on international tax reform before the end of the year.

Greg Jenner, acting assistant secretary of the Treasury for tax policy, acknowledged the possibility that Congress might not complete action on the legislation this year. "It's an honest debate that will probably go on throughout the balance of this year, and perhaps beyond that," he said during a conference sponsored by the Federal Bar Association.

Several key Capitol Hill tax aides who spoke at the same panel said they remained hopeful that Congress would move forward on bills to replace the extraterritorial income tax regime, despite recent snags in the reform efforts in both houses of Congress...

Senate Minority Leader Thomas Daschle (D-S.D.) and other Senate Democrats March 5 said they would not back down on job-related amendments to legislation (S. 1637) to repeal the illegal U.S. export tax regime, despite European Union sanctions that will increase each month until Congress gets rid of the export breaks.

"We want to get it done. We think this is an important bill. But there are some important issues we want to see resolved," Daschle told reporters following a rally on stopping the outsourcing of jobs to other countries, a top Democratic priority for the export tax repeal legislation.

The Senate will not take up the legislation again until at least March 22 and the 5 percent tariff now in place against certain U.S. exports will increase by 1 percentage point each month starting April 1. A difficult and potentially lengthy political struggle is expected.

Senate Finance Committee Chairman Charles Grassley (R-Iowa) Feb. 12 said he hopes to see legislation (S. 1637) to repeal the U.S. export tax regime reach the Senate floor the week of March 1.

Grassley told reporters it is his understanding that Senate Majority Leader Bill Frist (R-Tenn.) will seek to schedule floor consideration of the bill that week.

The Finance chairman said he believes even if the Senate acts, the European Union will continue with its plan to begin imposing just over $4 billion in trade sanctions against U.S. exports. "I think they're going to put sanctions on March 1 and we shouldn't be surprised if they do," Grassley said.

He later warned against taking a chance on sanctions at a Finance hearing on the administration's fiscal year 2005 budget proposals, adding export tax repeal is his committee's top priority. "This gambling with sanctions, if true, will bring a stormy environment to our efforts to expand trade," Grassley cautioned.

Treasury Secretary John Snow told Grassley at the hearing he agrees "we are playing with fire on these trade sanctions" and said the administration is committed to working with Congress to get export tax legislation passed.

The fiscal year 2005 budget unveiled by President Bush Feb. 2, in a shift away from last year's focus on international reforms, outlined a range of new domestic options to replace the U.S. export tax regime ruled an illegal subsidy in 2002 by the World Trade Organization.

The administration is scaling back its campaign for global tax reform to replace the extraterritorial income regime and focusing more on domestic options out of economic necessity, Assistant Treasury Secretary for Tax Policy Pam Olson said Feb. 2.

The government is hoping for legislation to replace the Extraterritorial Income Exclusion Act that is "as close to budget-neutral as possible," which leaves less room for expensive foreign reforms, Olson said at a briefing on the budget plan.

Most of the options proposed by the administration are more general domestic changes not specifically targeted toward manufacturing, such as alternative minimum tax relief and a permanent research credit.

Both major export tax repeal bills (H.R. 2896, S. 1637) now moving forward in the House and Senate contain specific tax cuts for domestic manufacturing--a concept the administration continues to oppose, Olson told reporters. "We're not real enthusiastic about sector-specific cuts," she said.

Senate Finance Committee Chairman Charles Grassley (R-Iowa) hopes to see legislation (S. 1637) to replace the U.S. export tax regime reach the Senate floor as soon as possible, but scheduling remains a challenge, a Senate aide said Jan. 5.

With the European Union poised to begin imposing sanctions on U.S. exports March 1 if Congress does not get rid of the Extraterritorial Income Exclusion Act, pressure is building, the aide acknowledged in an interview.

"We would like to see it brought up before the sanctions begin," the aide said. "But we have a lot of competing priorities."

The U.S. Chamber of Commerce Jan. 6 threw its support to the House version of the legislation (H.R. 2896), first unveiled last July by House Ways and Means Committee Chairman William Thomas (R-Calif).

While both bills feature a mix of fairly broad relief for U.S. manufacturing and provisions to help the overseas operations of U.S. multinationals, the political obstacles they face in their respective houses are very different....