After months of fraught debate and horse trading, the US House of Representatives finally approved its version of corporate tax legislation destined to replace the Extra-Territorial Income export subsidies ruled illegitimate by the World Trade Organisation. Central to the bill is a 3% corporate tax cut to be given to manufacturing firms in compensation for loss of the FSC-ETI subsidies. However, in common with the Senate version, the bill also contains a number of other tax and non-tax-related measures, including a contentious $10 billion buy out program for tobacco farmers. Other measures include: a one year reduction in tax on repatriated income to 5.25%; $4 billion in Alternative Minimum Tax relief; enhanced section 179 expensing for 2 years, to encourage small businesses to invest; 11 tax relief and simplification provisions for S Corporations; an easing of qualification rules under Subchapter S; provisions to prevent broad-based stock options becoming subject to payroll taxes; and rules allowing taxpayers to deduct either state income tax or sales tax (whichever is greater) for 2004 and 2005. Also in common with the Senate proposals, the bill has been loaded with several unrelated special interest provisions that have been tacked on to the legislation, such as tax breaks for fishing tackle boxes, bow and arrow makers, Puerto Rican rum and ceiling fans. These have pushed the overall cost of the bill to $155 billion over the next decade, offset by $34 billion in revenue raising provisions. Unsurprisingly, the hotchpotch of unrelated provisions has not made the legislation universally popular. “Nothing is ever simple in this city, the writers of this legislation needed to deal with an illegal export subsidy and we end up with a hydra-headed K Street wish list,” remarked lobby group Taxpayers for Common Sense who added that the proposals will “rack up billions of dollars of debt on future Americans’ federal credit card.” The Treasury has also expressed its desire to see a revenue neutral solution to the problem, although the Bush administration has not interfered in the process so far. However, in a statement released last week, the White House stated its intention to work with both chambers towards legislation that "that removes the threat of escalating EU sanctions and encourages economic growth and job creation at home." Meanwhile, the bill’s author, Ways and Means Committee Chairman Bill Thomas welcomed the bi-partisan 251-178 vote, and declared: "I look forward to quickly resolving differences between the House and Senate versions and sending a bill to the President’s desk for his signature – so American businesses can continue to do what they do best – create jobs."
