A taxing consideration

Looking at U.S. manufacturing industries since 1975—with imports exceeding exports in many areas and a continuing account deficit—it's clear that the past few years' downturn is more than just a cyclical happenstance. A definite economic shift is underway. It can be argued that this shift parallels one that occurred in the mid-19th century, as the economy shifted from an agrarian ...


Looking at U.S. manufacturing industries since 1975—with imports exceeding exports in many areas and a continuing account deficit—it's clear that the past few years' downturn is more than just a cyclical happenstance. A definite economic shift is underway.

It can be argued that this shift parallels one that occurred in the mid-19thcentury, as the economy shifted from an agrarian to an industrial base, and that people will adjust over time as they always have before. An article in the Thunderbird International Business Review , "An Analysis of the Global Position of U.S. Manufacturing," by Michael R. Czinkota of Georgetown University, illustrates this point well: "In the mid-1800s, about 68% of the U.S. employment was in the agricultural sector. Manufacturing accounted for only 17% of employment. By 2001, agriculture accounted for only 1.5% of employment. But 66% of the work-eligible population does not consist of unemployed farmers."

Beyond issues of correcting trade deficits, manufacturing remains important as a means of domestically producing goods we need and growing the knowledge that leads to such production ability. Although manufacturing's place in our lives has changed drastically over the past 30 years, its overall health is critical to the sustainability not just of our economy, but our way of life.

With this in mind, perhaps you've heard about the "Invest in the U.S.A. Act of 2003"—a proposal by the Homeland Investment Coalition (an organization of more than 60 companies and associations, including the National Association of Manufacturers, Honeywell, Eli Lilly, Johnson & Johnson, and Texas Instruments. For a company list and related legislation, see this column online). The Coalition's proposal would allow companies to bring dollars invested overseas back to the U.S. subject to, for a one-year period, a 5.25% toll tax on dividends in excess of normal distributions from foreign subsidiaries. Normally, these dollars would be subjected to the 35% U.S. corporate tax rate, which is why much of this money remains overseas.

It is unlikely that manufacturing will dominate the U.S. economy as it did for the first three-quarters of the 20thcentury. To help regain vitality during this time of economic shift, passage of the terms in the "Invest in the U.S.A. Act of 2003" could go a long way toward bolstering manufacturing companies and their workers. Newhouse News Service reports that a study by JP Morgan estimates that up to $300 billion could be repatriated under this proposal. Of that amount, about $100 billion could move into the economy over two years, potentially creating 400,000 to 500,000 jobs.

In my estimation, this would be a much better use of these dollars than taxing them at a higher rate to help provide extended unemployment benefits.


Online extra

Homeland Investment Coalition
The Homeland Investment Coalition, as of Nov. 13, 2003, consisted of the following companies and associations:

Advanced Energy Industries
Advanced Micro Devices
Alvaka Networks
American Electronics Association
Apple Computer
BEA Systems
BioMEMS Technologies
Boston Scientific
BMC Software
Cadence Design Systems
Computer & Communications Industry Association
DuPont Photomasks
Eli Lilly
EMS Technologies
Frequency Electronics
GM Nameplate
Information Technology Association of America
Information Technology Industry Council
Johnson & Johnson
Kerr McGee
Medical Device Manufacturers Association
National Association of Manufacturers
National Semiconductor
Nuera Communications
Pacific Northwest International Trade Association
Sara Lee
Scientific Technologies
Semiconductor Industry Association
Software Finance and Tax Executives Council
Sun Microsystems
Texas Instruments
United Technologies
Veritas Software

The two pieces of legislation that lead to the development of the Homeland Investment Coalition are:

  • H.R. 1162, the “Invest in America Act of 2003” was introduced March 6, 2003, and has been referred to the House Committee on Ways and Means. The official title of the bill, as introduced, is: “To amend the Internal Revenue Service Code of 1986 to allow a deduction for certain distributions from a controlled foreign corporation to encourage companies to invest in worker hiring and training, infrastructure investments, capital investments, financial stabilization of the company, and research and development.” Sponsor of the bill is Rep. Adam Smith (D-WA) and it has 28 cosponsors.

  • S.596, referred to as the “Invest in the U.S.A. Act of 2003” was introduced March 11, 2003, and has been referred to the Senate Committee on Finance. The official title of the bill, as introduced, is: “A bill to amend the Internal Revenue Code of 1986 to encourage the investment of foreign earnings within the United States for productive business investments and job creation. Sponsor of this bill is John E. Ensign (R-NV) and it has 23 cosponsors.

For more information on either bill, click here and input the bill numbers listed above.

According to a report at TwinCities.com , The Homeland Investment Coalition proposal is now “part of the larger Jumpstart bill, a package of tax cuts that repeals the controversial‘foreign sales corporation/extraterritorial income exclusion tax haven regimes’ ... and offers billions in corporate tax breaks to soften the blow.”

Much more discussion and political wrangling await this bill and the Coalition’s proposal when Congress reconvenes in 2004.

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