President Bush Asks Congress To Consider Replacement For Export Tax Breaks

by Mike Godfrey, Tax-News.com, Washington

04 February 2004

President Bush, in his budget proposals for 2005, has asked Congress to consider a number of tax cutting options to replace the Extra Territorial Income Exclusion Act, which the US must repeal to avoid EU sanctions in March.

Among the possible measures the President outlined on Monday were a cut in the rate of corporate tax, a permanent research tax credit and increased expensing for small businesses.

The alternative tax scenarios originated from the Treasury Department’s ‘Blue Book’ description of budget proposals, although the Treasury’s assistant secretary for tax policy Pam Olson told reporters that the Department’s preferred option is an across the board corporate tax cut, as opposed to sector-specific relief. However, the Treasury has given no indication as to how large any such tax cut should be.

"We're not enthusiastic about sector-specific provisions because sector-specific provisions have a tendency to distort investment decisions," observed Olson.

The House and the Senate are already considering two major bills to replace the export subsidies, including one sponsored by House Ways and Means Committee Chairman Bill Thomas. His proposal is based upon a 3% cut in corporate tax for American manufacturers to 32% by 2007, which would cost $61 billion over the next ten years.

However, Olson has made it clear that the Treasury would prefer any new measures to be revenue neutral.

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