Hi, I'm George Mundstock. Michael was kind enough to let me guest blog while he travels. Always wanted to try running a blog, but was afraid of the start-up and commitment (and, OK, that I would throw a blog and nobody would come). This is a great opportunity for me. Thanks Michael! Hope that you all find my stuff at least somewhat interesting.
As a tax type, it seems mandatory that my first entry be on taxes. Unfortunately for America, there is a huge corporate tax bill working its way through Congress, which is likely to pass after the elections and, therefore, makes a perfect first topic. The House passed the American Jobs Creation Act with $130 billion (over 10 years) in new corporate tax breaks (and some offsetting corporate tax increases, but only one big one, which will be discussed in a minute). The Senate has its Jumpstart our Business Strength (JOBS) Act with about the same total new benefits (although it, unlike the House bill, also includes the energy stuff that will be discussed tomorrow), but a few more revenue offsets, so as to have a lower net cost.
Quo Vadis? Well, its a long story: Since the 1960s, the US has had a tax incentive for exports, first called DISC (Domestic International Sales Corporations), then FISC (Foreign International Sales Corporations), and now ETI (Exempt Territorial Income). Most of the current tax benefits go to few companies (Boeing, GE, Intel, Microsoft, Honeywell, Caterpillar, Motorola, and Cisco). Surprise, all 3 versions of the incentive have been ruled to violate GATT by interfering with free trade, most recently in January of 2002. Since then, Europe has waited patiently for Congress to repeal ETI. (The Bush Administration did not push very hard for a fix.) Finally, in January, various European countries began imposing WTO-approved sanctions: tariffs on various imported US goods, which tariffs increase the longer that the US is in non-compliance, until the tariffs reach a total of $4 billion a year. So, now, Congress must Act. But, there is a problem: Chair Thomas of the House Ways & Means Committee views this as a “competitiveness” issue: US corporations must pay as little tax on foreign operations as some hypothetical tax outlaw foreign corporation (that doesn't really exist). In other words, GE needs new breaks for its foreign operations to replace its lost export incentive — that this makes it more desirable for US businesses to export jobs be damned. But, wait, says the Senate, what about Boeing and Caterpillar? We also need tax breaks for US manufacturing to replace the lost break for US manufacturers who export. And the House, which never met a tax cut that it didn't like, agrees. So, now, we have 2 bills that, rather than pick up $50 billion in much needed federal revenues by repealing an illegal subsidy, instead provide expensive new rules that benefit companies' offshore operations, while also rewarding anything that some accountant thinks is US manufacturing. Aarrgh! Why isn't your business as valuable to America as manufacturing?
