The
American Jobs Creation Act Of 2004
Under
fire to produce legislation which would
roll back the FSC and ETI export subsidy
regimes which had been banned by the WTO,
Congress finally agreed a text which was
thought likely to be acceptable to the WTO
and the EU only in October, 2004.
The
bill, dubbed the "American Jobs Creation
Act of 2004," set in train an eventual repeal
of FSC-ETI subsidies for around 1,800 firms,
and the lifting of European Union tariffs
on US exports, and was eventually passed
by the Senate in a 69-17 vote after the
upper chamber was forced to sit an unusual
Sunday session to iron out a dispute relating
to a $10 billion buyout of quotas held by
tobacco farmers.
The centrepiece of the new legislation was
an effective 3% corporate tax cut for ‘qualifying’
US producers and manufacturers - a broad
definition which includes traditional manufacturers,
architects, Hollywood studios, and oil and
gas drillers, among other sectors. The reduction,
to be phased in through 2010, will eventually
benefit around 200,000 firms, saving them
$76.5 billion in tax, it has been estimated.
A one year ‘tax holiday’ which dropped the
corporate tax rate to 5.25% for firms repatriating
earnings held offshore also found its way
into the final version of the Act. This
provision was welcomed by the hi-tech industry,
which claimed it would help to repatriate
as much as $300 million to the US and create
half a million new jobs. Opponents however,
criticized the move for effectively rewarding
firms for outsourcing jobs overseas.
Another important measure aimed to enable
taxpayers residing in states that do not
levy an income tax to deduct state sales
tax on their federal tax returns for a temporary
period. Rules relating to foreign tax credits,
interest expense allocation and other items
have also been simplified under the bill
in a bid to make US multinationals more
competitive overseas.
Controversially, the hefty 650 page bill
contained a cornucopia of other unrelated
special interest measures that benefit a
variety of recipients ranging from fishing
tackle makers to racetrack owners. It has
been estimated that the package provides
more than $100 billion in tax relief overall,
although lawmakers insisted that the bill
is revenue neutral to the Treasury through
the closure of tax loopholes and other revenue
raising measures.
However, perhaps the most crucial measure
of all - the repeal of the FSC-ETI legislation
- continued to be phased out only over the
following three years. Initially, the European
Union’s then Trade Commissioner, Pascal
Lamy, indicated that the new legislation
was unlikely to result in an immediate lifting
of EU trade tariffs on US goods.
Whilst welcoming the final passage of the
American Jobs Creation Act 2004, Lamy stated
that time would be needed for EU officials
to thoroughly examine the provisions of
the bill and ascertain whether it meets
with the Commission’s requirements before
the sanctions can be lifted.
“I
am pleased that Congress has finally taken
this step towards US compliance with the
WTO ruling. It vindicates the EU’s patient
but firm approach,” Mr Lamy commented. He
added: “We will now carefully study the
details in the final compromise between
both chambers, in particular regarding transition
periods, grandfathering clauses, as well
as all other relevant fiscal provisions.”
However, subsequent reports showed that
a transatlantic rift over government support
for the main American and European aircraft
manufacturers, namely Boeing in the US and
Airbus in the EU, could complicate the matter.
“There
are a number of issues which are not that
clear, for instance on the treatment of
options for selling planes. Depending on
our findings and the fact that the Boeing
issue has surfaced, we will need to see
what to do,” noted Lamy. The
possible grandfathering of the firm's tax
break in relation to future sales was said
to be a particular problem.
President
Bush duly signed the Jobs Creation Act aboard
(Boeing) Airforce One. "This legislation
will end the European sanctions on American
exports, and it will help promote the competitiveness
of American manufacturers and other job
creators, and help create jobs here in America,"
White House spokesman Scott McClellan announced
on the campaign trail in Pennsylvania.
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