U.S. President George Bush Friday signed tax legislation that provides $145 billion in new tax relief to U.S. corporations over the next 10 years, including a provision giving a tax break to companies that return income to the U.S. from operations located overseas.
The American Jobs Creation Act of 2004, which includes a range of corporate tax breaks, reduces the tax on “repatriated” foreign income from 35% in most cases to 5.25%, with some limitations. Republican sponsors of the legislation and other backers say the tax break will encourage IT companies and other firms with overseas operations to bring money back to the U.S. and pump up the economy.
“Who do you want to be better off?” said Bartlett Cleland, associate general counsel for the Information Technology Association of America, during an interview last month. “Do you want German citizens to be better off, or do you want U.S. citizens to be better off? If the money doesn’t come into the country at all, the U.S. government gets zero (tax) dollars.”
Some Democrats, including Representative Charles Rangel from New York, have opposed the bill, saying it encourages companies to move jobs overseas. “They say this legislation creates jobs, but not for Americans, it creates jobs for people overseas,” Rangel said on the House floor in June.
Taxes on income earned overseas are generally deferred until that money is brought back into the U.S. Senator John Kerry, the Democratic candidate for president, has opposed these deferments, saying they are loopholes that encourage offshore outsourcing.
The American Jobs Creation Act started as a way to repeal an export tax break for U.S. corporations, ruled as illegal by the World Trade Organization more than a year ago. It ballooned to include tax breaks for a number of U.S. industries. It includes a reduction in excise taxes on fishing tackle boxes, and a tax break for ceiling fan manufacturers.
The bill also simplifies the process by which U.S. companies doing business overseas claim tax credits on taxes paid to other governments.
