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Taxcuts replace export tax to please wto

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U.S. Corporate Tax Rule Changes Approved by House Committee

June 15 (Bloomberg) -- The House Ways and Means Committee approved a rewrite of corporate tax rules to stop the European Union from imposing rising trade sanctions on U.S. products.

The measure was sent by the committee to the full chamber for a vote later this week after the panel voted 27- 9 late Monday to pass it.

Lawmakers are under pressure to restructure an export subsidy ruled illegal in 2002 by the World Trade Organization, which authorized EU sanctions that may reach $4 billion annually. The EU began levying the tariffs in March, starting with a 5 percent duty on products including jewelry, textiles and wood. Those tariffs are currently at 8 percent and increase by one percentage point a month.

``The genius of American politics is accommodation and compromise -- and this legislation reflects that mix,'' said Bill Thomas, a California Republican and chairman of the panel. ``Fixing our international tax law is long overdue, and I am pleased that we're building momentum for House action and bipartisan support.''

The proposed changes would, among other things, replace an export tax break ruled illegal by the World Trade Organization with a reduced tax rate for most manufacturers, cut taxes on U.S. companies operating overseas and compensate tobacco farmers who abandon a Depression-era program that controls tobacco prices and supply levels.

Three Democrats voted with all of the Republicans on the panel, signaling that provisions added to the bill by Thomas -- such as a renewed deduction on federal tax returns for sales taxes -- have bolstered support for the legislation. Two of the Democratic votes -- John Tanner of Tennessee and Max Sandlin of Texas -- came from lawmakers representing states without an income tax whose residents back making sales taxes deductible.

House Debate

The bill now heads to the House floor for debate on Thursday. Its chances of passing have been boosted by the inclusion of several proposals, including the tobacco buyout provision, the proposal making sales taxes deductible, and a one-year tax-cut to persuade companies like Eli Lilly & Co. and Hewlett-Packard Co. to return billions in profits earned overseas to the United States.

Thomas predicted last week the bill would pass the House, overcoming the objections of about two dozen Republicans from manufacturing states who have blocked its passage since December.

Those lawmakers, led by Small Business Committee Chairman Don Manzullo, an Illinois Republican, don't want money from the export tax break that benefits companies like Boeing Co. and Caterpillar Inc. to be given to companies like General Electric Co. that are shifting operations offshore.

Provisions Added

Representative Charles Rangel of New York, the senior Democrat on the panel, said the bill ``stinks to high heaven'' because of the provisions added to attract votes and accused Thomas of trying to buy votes wherever he could.

``I know you want this bill badly, but I did not know you wanted it this badly,'' Rangel said. ``I truly believe that it smells so bad that, when it gets to the floor, those people that you have tried to entice for a vote will be discouraging other people because these provisions are so unrelated to the issue that should before our committee -- and that is how to remove the impediment that has been placed on us by the World Trade Organization.''


Former Texas Representative Bill Archer, who was the Ways and Means Committee Chairman for six years before Thomas, said his successor has done what he needs to do to pass a bill and get to final negotiations with the Senate.

``From a political standpoint, the bill has been greatly improved,'' said Archer, who now lobbies for PricewaterhouseCoopers LLP. ``The big tug-of-war is going to be in conference and it's not going to be pretty.''

Republicans on the committee defeated several Democratic amendments, including one that would have delayed tax-cuts for multinational corporations and another to ban the Internal Revenue Service from hiring private companies to collect delinquent debt.

Republicans also defeated an amendment by Sandlin to make permanent the sales tax deduction, which would expire after two years in the bill, and eliminate the tax breaks for multinational corporations to pay for it.

The only amendment adopted was offered by Connecticut Republican Nancy Johnson. Johnson proposed deleting a provision in the bill that would ease punishments levied against religious ministers who advocate political positions during campaigns. Current law forbids tax-exempt entities such as churches and charities from engaging in politics.

Final Negotiations

Once the bill is passed, House lawmakers will start negotiating with senators who passed their own $170 billion tax legislation in May.

Among other things, lawmakers must decide what to do about abusive tax shelters, including when to apply a ban on tax breaks claimed by companies such as Wachovia Corp. and Pepco Holdings Inc. for pretending to buy publicly funded infrastructure such as transit systems, sewer lines and power plants.

The bills also take different approaches to loosening rules on when U.S. companies can claim a dollar-for-dollar credit for taxes paid to other governments. The Senate would let companies keep unused foreign tax credits for a longer period of time; the House would remove barriers that restrict companies' abilities to claim credits now, an approach lobbied for by General Electric.

Other differences include the mechanics of a 3 percentage point tax cut for manufacturers and whether to include special interest provisions ranging from the tobacco buyout to special interest tax breaks for cruise lines, stock-car racers and makers of bows and arrows.

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