Export Tax Issue May Take Back Seat As Election Fever Takes Hold

by Mike Godfrey, Tax-News.com, Washington

16 February 2004

Prospects of the United States avoiding EU imposed tariffs this year are looking bleaker by the day as lawmakers begin to focus their attention on election year politics.

Reports indicate that a split is emerging within the Republican ranks in Congress. Many conservatives are unhappy at the size of the budget deficit, and have become acutely sensitive to any proposals that may add to the growing fiscal gap.

Consequently, it is felt that the repeal of the Extra Territorial Income Exclusion Act, and its subsequent replacement with broader corporate tax cuts, is not a top priority at present, despite the reality of tariffs on US goods entering the EU from March.

"Frankly, we'd rather fight a trade war" than consider new legislation, was how one senior Republican aide put it to the Wall Street Journal.

However, this is not a view shared by all, and Chairman of the Senate Finance Committee Charles Grassley, has warned against such sentiment.

“There are rumors that some in the other body pooh-pooh this threat, saying that the phased-in schedule is no big deal," Mr. Grassley said. "This gambling with sanctions, if true, will bring a stormy environment to our efforts to expand trade."

Grassley, who is co-sponsoring alternative legislation with ranking Democrat Max Baucus, which will shave 3% off the top rate of corporate tax for US exporters, is joined in his sense of urgency by senior administration officials, such as Treasury Secretary John Snow.

Referring to the enactment of new legislation, Mr Snow told the Senate Finance Committee last week: "We need to do it before the sanctions come into effect."

"We are playing with fire with regard to those trade sanctions," he prophesised.

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