[Congressional Record Volume 144, Number 93 (Tuesday, July 14, 1998)]
[Senate]
[Pages S8135-S8136]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MACK (for himself, Mr. Breaux, Mr. Chafee, Mr. Murkowski, 
        Mr. Hatch, Mr. D'Amato, Mr. Rockefeller, Mr. Gramm, Mr. Warner, 
        Mrs. Hutchison, Mr. Dodd, Mr. Gregg, Mr. Robb, Mr. Thurmond, 
        Mr. Lieberman, and Mr. Cochran):
  S. 2296. A bill to amend the Internal Revenue Code of 1986 to repeal 
the limitation on the amount of receipts attributable to military 
property which may be treated as exempt foreign trade income; to the 
Committee on Finance.


              defense jobs and trade promotion act of 1998

  Mr. MACK. Mr. President, I rise to introduce the Defense Jobs and 
Trade Promotion Act of 1998. This bill will eliminate a provision of 
tax law which discriminates against United States exporters of defense 
products.
  Other nations have systems of taxation which rely less on corporate 
income taxes and more on value-added taxes. By rebating the value-added 
taxes for products that are exported, these nations lower the costs of 
their exports and provide their companies a competitive advantage that 
is not based on quality, ingenuity, or resources but rather on tax 
policy.
  In an attempt to level the playing field, our tax code allows U.S. 
companies to establish Foreign Sales Corporations (FSCs) through which 
U.S.-manufactured products may be exported. A portion of the profits 
from FSC sales are exempted from corporate income taxes, to mitigate 
the advantage that other countries give their exporters through value-
added tax rebates.
  But the tax benefits of a FSC are cut in half for defense exporters. 
This 50% limitation is the result of a compromise enacted 22 years ago 
as part of the predecessor to the FSC provisions. This compromise was 
not based on policy considerations, but instead merely split the 
difference between members who believed that the U.S. defense industry 
was so dominant in world markets that the foreign tax advantages

[[Page S8136]]

were inconsequential, and members who believed that all U.S. exporters 
should be treated equally.
  Today, U.S. defense manufacturers face intense competition from 
foreign businesses. With the sharp decline in the defense budget over 
the past decade, exports of defense products play a prominent role in 
maintaining a viable U.S. defense industrial base. It makes no sense to 
allow differences in international tax systems to stand as an obstacle 
to exports of U.S. defense products. We must level the international 
playing field for U.S. defense product manufacturers.
  The fifty percent exclusion for sales of defense products makes even 
less sense when one considers that the sale of every defense product to 
a foreign government requires the determination of both the President 
and the Congress that the sale will strengthen the security of the 
United States and promote world peace. This is more than a matter of 
fair treatment for all U.S. exporters. National security is enhanced 
when our allies use U.S.-manufactured military equipment, because of 
its compatibility with equipment used by our armed forces.
  The bill I am introducing today will repeal the provision of the 
Foreign Sales Corporation laws that discriminates against U.S. defense 
product manufacturers, enhancing both the competitiveness of U.S. 
companies in world markets and our national security.
  Mr. President, I ask unanimous consent that the text of the bill be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:
       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE.

       This Act may be cited as the ``Defense Jobs and Trade 
     Promotion Act of 1998''.

     SEC. 2. REPEAL OF LIMITATION ON RECEIPTS ATTRIBUTABLE TO 
                   MILITARY PROPERTY WHICH MAY BE TREATED AS 
                   EXEMPT FOREIGN TRADE INCOME.

       (a) In General.--Subsection (a) of section 923 of the 
     Internal Revenue Code of 1986 (defining exempt foreign trade 
     income) is amended by striking paragraph (5) and by 
     redesignating paragraph (6) as paragraph (5).
       (b) Effective Date.--The amendment made by subsection (a) 
     shall apply to taxable years beginning after the date of the 
     enactment of this Act.
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