The WTO has allowed the EU to levy €3.4 billion (about $4 billion) in tariffs against American exports in response to the Foreign Sales Corporation/Extraterritorial Income (FSC/ETI) subsidy that allows U.S. companies to exclude from federal taxes 15% of their income made from export sales. Some form of this has been on the books for 60 years and already ruled illegal once in 1999, but when changed, ruled illegal again.
Originally these tariffs were to start the first of the year, but the EU pushed them back to March 1 to give Congress time to act. Since the start of the month, a 5% tariff has been applied to a large assortment of goods, and an additional percentage point will be added to the tariff each month until the WTO-allowed limit of 17% is reached.
There are two main proposals in Congress. The Senate version has been active this week (with not so good results), and the House version is still waiting in the wings, looking for more support. House Ways and Means Committee chairman Bill Thomas has said that the effort to repeal the FSC/ETI is "probably going to fall by the wayside." At least one other Congressman has said that it might be best to wait until mid-way though next year. This year alone tariffs are expected to cost $300 billion.
Holding it up is some of the biggest receivers of the FSC/ETI benefit — Microsoft, Boeing, and Catepillar — and none of them expect to be hit by the tariffs. And this is one of the major practical problems with special tax breaks. Once they are handed out, they are hard to wrestle back. Both the House and Senate bills propose to take the revenue gained from the repeal and use it to lower the marginal tax rate of manufacturers from 35% to 32%. This creates situation where companies will lobby to have the definition of manufacturing widened (if a bakery is considered manufacturing, then why not software or fisheries).
Karl Marx would have instantly recognized this as "the economic and political sway of the bourgeois." The Senate and House bills are shaping up to be one large company against another to see who can draw off the greatest benefits, even at the expense of others. Marx asked "And how does the bourgeoisie get over these crises?" His response is brilliant, if a bit dark, "by paving the way for more extensive and more destructive crises, and by diminishing the means whereby crises are prevented." They create a situation where abuse of their position is even more possible, knowing that when that crumbles, they will again be able to continue their cycle.
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