Many Republicans Unhappy With Thomas's Tax Pantechnicon

by Mike Godfrey, Tax-News.com, Washington

18 July 2002

House Republicans are beginning to understand the damage that Bill Thomas's American Competitiveness Bill of 2002 would do to major parts of US industry in its attempt to square the circle of international taxation.

First off the plate are of course those Representatives whose constituencies include major beneficiaries of the Extraterritorial Income Exclusion Act, or ETI, which replaced the Foreign Sales Corporation tax break and benefits exporters such as Eastman Kodak, Boeing, Raytheon and Microsoft to the tune of $4bn a year. The Bill would repeal the ETI in response to its banning by the World Trade Organisation.

Rep. Sam Johnson (R - Texas) for instance said he is talking with Thomas on how to ease the blow on defense contractors, a major industry in his district. "I'm a 'no' if it's out there the way it is now," Johnson said. "All kinds of the companies in the district have problems with it."

A House Republican aide told the Wall Street Journal that conservatives were angry, saying: "We hate this bill. It's a $50 billion tax increase on businesses from the repeal of FSC and ETI and there's no adequate replacement."

Other Congressmen with major overseas-based companies in their constituencies are upset by the bill's worsening of the tax regime for such companies. And no-one seems much impressed by the tax improvements Mr Thomas insists balance up his bill.

Bill Thomas had told reporters that he wanted to have the bill voted out of his Ways and Means Committee and pass the House floor before Congress adjourns for its summer recess on 26th July, but that seems unlikely.

Apart from the changes to international taxation, the bill also imposes harsh financial penalties against individuals or companies that fail to disclose their use of tax shelter schemes to reduce tax payments.

Politicians who attack the bill are being purposefully naive. They know it won't become law - it has so many targets that it can only be understood as a way of allowing Republican congressmen to show themselves responsive to public concerns in advance of congressional elections this fall - but it allows them to beat the drum for major local employers and then claim the credit when the legislation fails. So everyone's a winner!

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