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US Senate Drops Illegal Export Subsidies; Gives Tax Breaks to Manufacturers - 2004-10-11

The Senate has voted to repeal a tax subsidy for U.S. exports that the World Trade Organization says violates global trade rules. The bill, which already has been approved by the House of Representatives, now goes to President Bush for his signature.

Lawmakers were eager to pass the bill to repeal the $5-billion-a-year export subsidy and end a trade dispute with the European Union.

The European Union imposed punitive tariffs on a variety of U.S. products in March in response to the WTO ruling.

The legislation also includes nearly $140 billion in new tax breaks for businesses ranging from ship builders to ceiling fan importers. It would lower the tax rate on corporate profits from 35 percent to 32 percent for all domestic producers.

In addition, the bill calls for repealing illegal tax subsidies and closing corporate tax shelters.

Opponents of the bill, which has been called the most sweeping overhaul of corporate tax law in nearly two decades, see the measure as a special-interest giveaway that will increase the record budget deficit. But the chief sponsor of the legislation, Senator Chuck Grassley, an Iowa Republican, sees it differently.

"The bill that is before us is going to help companies compete for and create jobs," he said. "It will make sure that the United States meets our obligations to our trading partners under our international trading agreements. Most importantly, it is closing a lot of corporate tax shelter loopholes and other abusive tax shelters that need to be closed."

Senate passage was delayed by a dispute over an amendment that would give companies a 50 percent tax credit for paying the full salaries of National Guard members and reservists called to active duty.

The amendment had been in the Senate version of the legislation, but was taken out when House Republicans opposed it. Many lawmakers feared the dispute on the amendment would derail the overall legislation. But the amendment's sponsor, Senator Mary Landrieu, a Louisiana Democrat, vowed to continue fighting for it.

"What I objected to was that the Guard and Reserve amendment, which would have given a tax credit to the thousands of businesses in this country, that are doing the patriotic thing, the right thing, the good thing, and they are getting commended by our president and us for thanking them, we could not provide them a 50 percent tax cut to keep this paycheck whole on the front line," she said.

A deal was reached to allow the amendment to be considered as separate legislation, clearing the way for a vote on the underlying bill. Ms. Landrieu's legislation is expected to be taken up again next month.

The Senate worked on the corporate tax bill in rare Saturday and Sunday sessions to reach the deal.