HAI tels ANN that that the US Senate Finance Committee voted 19-2 on Wednesday to approve a tax package (S. 1637) drafted by Finance Chairman Charles E. Grassley (R-Iowa) intended to resolve a trade dispute between the United States and the European Union (EU) before a year-end deadline for avoiding sanctions against U.S. exports. The bill was modified in committee to direct more tax benefits to U.S. companies that run factories overseas, and to foreign-owned firms with U.S. plants.

The centerpiece of the bill remains a deduction for U.S. manufacturers, which would be phased in between 2004 and 2009, and which would amount to a 3 percentage-point reduction in the 35 percent top corporate income tax rate. The tax breaks for overseas income would be smaller and would take effect later. The committee-approved bill would allow a partial deduction beginning in 2010. (Chairman Grassley’s original draft bill would not have allowed a deduction from overseas income until 2012.)

In another significant concession to companies with foreign operations, Senator Grassley altered his proposal to permit overseas profits to be brought into this country during a one-year period at a 5.25 percent income tax rate. The committee rejected a proposal by Senator John Breaux (D-LA) to limit the amount of money that could be brought into the United States at the reduced tax rate and require companies to spend the money on research and development, payroll expansion, and pensions.

House Ways and Means Committee Chairman Bill Thomas (R-California) continues to try to move his own corporate tax package (H.R. 2896), but HAI reports that he appears to lack majority support among committee Republicans. Chairman Thomas has indicated that he hopes to schedule a markup of his bill for next week in the hope of bringing the bill to the House floor the week of October 13.

FMI: www.senate.gov