Senate Committee Approves Manufacturing Tax Cut

by Mike Godfrey, Tax-News.com, Washington

03 October 2003

The United States Senate Finance Committee approved crucial tax legislation on Wednesday this week (October 1) that will replace the Extraterritorial Income Exclusion Act and hopefully avert a potential trade war with the European Union.

The bill was passed by a vote of 19-2, and proposes using the $50 billion saved from the repeal of the Act to cut corporate tax for manufacturing firms from 35% to 32%. The bill also includes measures that will allow US multinationals to more easily take advantage of foreign tax credits, and they will be able to repatriate foreign earnings at a 5.25% tax rate for a temporary period. In addition, Senate Finance Committee Chairman Charles Grassley indicated that there are also provisions within the legislation which will benefit farmers and lumber firms.

However, the proposal is not without its critics. One opponent of the bill, Sen. Don Nickles, an Oklahoma Republican, said creating a two tier tax system for manufacturing and non-manufacturing firms will be difficult to administer and lead to companies claiming they fall in the manufacturing sector when they do not. Instead, he urged an across the board corporate tax cut.

Pamela Olson, Assistant Treasury Secretary, expressed a similar argument on behalf of the IRS, explaining that the proposed system will be difficult to enforce. Nevertheless, Treasury Secretary John Snow announced in a statement that is is the government's "top priority" to get a bill enacted in order to prevent the EU imposing $4 billion worth of sanctions.

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