[Congressional Record Volume 145, Number 78 (Thursday, May 27, 1999)]
[Senate]
[Pages S6313-S6319]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. MACK (for himself, Mrs. Feinstein, Mr. Murkowski, Mr. 
        Breaux, Mr. Gramm, Mr. Robb, Mr. Chafee, Mr. Graham, Mr. Bryan, 
        Mr. Torricelli, Mr. Warner, Mr. Thurmond, Mr. Grams, Mr. Kyl, 
        Mr. Helms, Mr. Hutchinson, Mr. Lugar, and Mr. Cochran):
  S. 1165. 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 1999

  Mr. MACK. Mr. President, I rise to introduce the Defense Jobs and 
Trade Promotion Act of 1999. This bill, cosponsored by Senator 
Feinstein and 16 of our colleagues, 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 23 years ago 
as part of

[[Page S6319]]

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 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 Department of Defense supports repeal of this provision. In an 
August 26, 1998 letter, Deputy Secretary of Defense John Hamre wrote 
Treasury Secretary Rubin about the FSC. Hamre wrote, ``The Department 
of Defense (DoD) supports extending the full benefits of the FSC 
exemption to defense exporters * * * [P]utting defense and non-defense 
companies on the same footing would encourage defense exports that 
would promote standardization and interoperability of equipment among 
our allies. It also could result in a decrease in the cost of defense 
products to the Department of Defense.''
  The bill we are introducing today supports the DoD recommendation. It 
repeals 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:

                                S. 1165

       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 1999''.

     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.
                                 ______