Number: RL32103
Title: Comparison of Tax Incentives for Domestic Manufacturing: 108th Congress
Authors: Jane G. Gravelle, Government and Finance Division 
Abstract: Several bills were introduced in the 108th Congress which would have eliminated the extraterritorial income tax (ETI) provision that has been found to contravene trade agreement restrictions against export subsidies by the World Trade 0rganization (WTO). Each bill included other provisions, in some cases to offset the revenue gain from the provision with a tax cut, and in others to go beyond the offset to provide an overall net tax reduction. Each bill had a provision that was specifically focused on manufacturing and was either explicitly limited to or would in effect be largely focused on domestic manufacturing. The argument for providing an offsetting benefit to manufacturing was that the burden of the repeal of the ETI largely falls on the manufacture of goods in the United States, and in some ways the provision of benefits to domestic manufacturing was the closest way to provide general tax cuts to the firms that lose benefits. In addition, arguments were made that losing the export subsidy would discourage domestic production, and this incentive was needed to offset the effects of eliminating the ETI. The enacted provision of this legislation (H.R. 4520), following the passage of the Senates version (then S. 1637) and the House bill (H.R. 4520) followed the Senate version, which allowed a deduction and would cover unincorporated firms as well as corporations. However, the proposal contained the broader definition of manufacturing in the House bill which included oil and gas extraction, utilities, construction, and electricity. The remainder of this report discusses the provisions in these two versions of the subsidy as well as some of the issues surrounding alternative methods of providing a manufacturing subsidy.
Pages: 11
Date: January 25, 2005