THE DEFENSE JOBS AND TRADE PROMOTION ACT OF 1997
David Isenberg
http://rs9.loc.gov/cgi-bin/query/12?r105:./temp/~r1058JGd:e1:arms+sales
THE DEFENSE JOBS AND TRADE PROMOTION ACT OF 1997 -- HON. WALLY HERGER (Extension
of Remarks - March 12, 1997)
[Page: E443]
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HON. WALLY HERGER
in the House of Representatives
WEDNESDAY, MARCH 12, 1997
Mr. HERGER. Mr. Speaker, today Mr. Jefferson, Mr. Crane, Ms. Dunn, Mr. Sam
Johnson of Texas, Mr. Hulshof, Mr. Hayworth, Mr. English, Mr. Cardin, Mr.
Packard, Mr. Dreier, Mr. King, and Mr. McCollum join me in introducing
legislation that eliminates a provision of tax law which discriminates against
U.S. exporters of defense products. The Defense Jobs and Trade Promotion Act of
1977 will help defense contractors improve their competitiveness, will protect
our defense industrial base, and will help insure that American defense
workers--who have already had to adjust to sharply declining defense budgets--do
not see their jobs lost to overseas competitors because of a harmful quirk in
our own tax law.
The Internal Revenue Code allows U.S. companies to establish Foreign Sales
Corporations [FSC's], under which they can exempt from U.S. taxation a portion
of their earnings from foreign sales . This provision is designed to help U.S.
firms compete against companies in other countries which rely more on
value-added taxes [VAT's] than on corporate income taxes. When products are
exported from such countries, the VAT is rebated, effectively lowering their
prices. U.S. companies, in contrast, must charge relatively higher prices in
order to obtain a reasonable net profit after taxes have been paid. By
permitting a share of the profits derived from exports to be excluded
from corporate income taxes, the FSC in effect allows companies to charge lower
prices and partially compensates for the differences between the U.S. tax system
and that of most of our competitors.
In 1976, Mr. Speaker, the tax law was amended to reduce the tax benefits
for defense products to 50 percent, while retaining the full benefits for all
other products. The rationale for this discriminatory treatment--that U.S.
defense exporters faced little competition--no longer exists. Whatever the
veracity of that premise 20 years ago, today's military exports are subject to
fierce international competition in every area. Twenty years ago, roughly
one-half of all the nations purchasing defense products benefited from U.S.
military assistance. Today, U.S. military assistance has been sharply curtailed
and is essentially limited to two countries. Moreover, with the
sharp decline in the defense budget over the past decade, exports of defense
products have become even more critical to maintaining a viable U.S. defense
industrial base. The aerospace industry alone provides over 800,000 jobs for
U.S. workers. Roughly one-third of these jobs are tied directly to export sales
. In 1996, for example, total industry sales were $112 billion, $37 billion of
which was for exports. Of the three fighter aircraft under production in this
country, two are dependent on foreign customers.
No valid economic or policy reason exists for continuing a tax policy that
discriminates against a particular class of manufactured products. Furthermore,
repealing this section will not impact the foreign policy of the United States.
Military sales will continue to be subject to the license requirements of the
Arms Export Control Act.
Mr. Speaker, improvement of the U.S. trade imbalance is fundamental to the
health of our economy. The benefits provided by the FSC provisions contribute
significantly to the ability of U.S. exporters to compete effectively in foreign
markets. The FSC limitation on the exemption for defense exports hampers the
ability of U.S. companies, many of whom already have access to large foreign
markets, to compete effectively abroad with many of their products. Section
923(a)(5) should be repealed immediately to remove this impediment to
international competitiveness and to improve the health of our
defense industry.
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David Isenberg, Senior Research Analyst
CDI's ONLY genuine former enlisted man
Center for Defense Information
1500 Massachusetts Ave, NW, Washington, D.C. 20005
202/862-0700 (Voice), 202/862-0708 (Fax), dise...@cdi.org (Email)
Arms Trade Data Base Web Site: www.cdi.org/atdb
WAIS Users: wais.cdi.org database atdb
Arms Trade Listserver Archive: mail2.cdi.org/archives/armstrade
Have black belt, will fight
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