[Congressional Record Volume 145, Number 154 (Thursday, November 4, 1999)]
[Extensions of Remarks]
[Pages E2269-E2270]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]




           NATIONAL SECURITY SEALIFT ENHANCEMENT ACT OF 1999

                                 ______
                                 

                            HON. JIM McCRERY

                              of louisiana

                    in the house of representatives

                       Thursday, November 4, 1999

  Mr. McCRERY. Mr. Speaker, today my friend from Louisiana, Mr. 
Jefferson and I are introducing comprehensive legislation to address 
provisions of the tax code that have led to the decline of our domestic 
maritime industry.
  The last fifty years have seen a steady erosion of the size and 
capacity of the U.S.-flag merchant marine. In 1947, more than 2,300 
ships flew the Stars and Stripes. That figure has shrunk by nearly 90% 
since then. Amazingly, there are now seventeen countries with larger 
merchant marine fleets. For those who have followed the decline of the 
U.S.-flag, it will come as no surprise that we have been eclipsed by 
such nations as Panama, Liberia, Cyprus, and Saint Vincent.
  These nations do not have enormous merchant marines because of their 
exports or imports. I am convinced that favorable tax treatment in 
those countries is directly responsible for the decline of our own 
merchant marine and the growth we have seen elsewhere in the world.
  This is a critical matter of both national security and economic 
growth. Unless we as a country respond quickly and effectively to this 
situation our United States-flag merchant marine--the nation's fourth 
arm of defense--will in all likelihood be unable to fulfill its 
historic mission of responding in times of war or other international 
emergencies.
  As I remarked earlier this year, as recently as the Persian Gulf War 
and the conflict in Bosnia, United States-flag commercial vessels and 
United States citizen crews respond quickly, effectively, and 
efficiently to our nation's call, providing the sealift sustainment 
capability necessary to support America's armed forces and to help 
protect America's interests overseas. In 1992, General Colin Powell, 
then-Chairman of the Joint Chiefs of Staff, told the graduating class 
of the United States Merchant Marine Academy at Kings Point that:
  ``Since I became Chairman of the Joint Chiefs of Staff, I have come 
to appreciate firsthand why our merchant marine has long been called 
the nation's fourth arm of defense . . . The war in the Persian Gulf is 
over but the mechant marine's contribution to our nation continues. In 
war, merchant seamen have long served with valor and distinction by 
carrying critical supplies and equipment to our troops in far away 
lands. In peacetime, the merchant marine has another vital role--
contributing to our economic security by linking us to our trading 
partners around the world and providing the foundation for our ocean 
commerce.''
  The maritime industry is not only important to our nation's economic 
and military security. It is also of particular importance to my State 
of Louisiana. A recent report concludes that ``the ports of Louisiana 
and the maritime industry are crucial parts of the Louisiana economy.'' 
It calculates that in 1997, Louisiana realized a ``total economic 
impact [of] $28.1 billion'' from the activities of our State's ports, 
steamship and tug and barge companies, firms providing shore side 
services, and other entities engaged in the maritime, transportation 
and related service and supply industries. We should not allow these 
economic benefits to be lost to Louisiana, any other State or to our 
nation as a whole.
  I remain convinced that the best way to ensure that our nation 
continues to have the militarily-useful commercial vessels and trained 
and loyal citizen crews we need to support our interests around the 
world is to pursue policies enabling our maritime industry to flourish 
in peacetime. The place to start, without question, is the tax code.
  A review of foreign tax laws demonstrates that the decline in our 
merchant marine can be traced to the favorite tax benefits offered by 
other countries. In 1995, United States-flag vessel carriers presented 
testimony to the Congress which summarized the impact American tax laws 
have on American vessels and

[[Page E2270]]

described, in terms as true today as they were then, how these laws 
favor foreign shipping operations:
  ``U.S.-based liner companies are subject to significantly higher 
taxes than their foreign-based counterparts . . . [A]s a result of 
shipping tax exemptions, deferral devices, and accelerated 
depreciation, many of our foreign competitors pay virtually no income 
taxes [and] neither do their crews under many foreign tax regimes. Yet 
here at home, even in our unprofitable years, we are subject to the 
Alternative Minimum Tax. Consequently, U.S.-flag operators must earn 
more in the marketplace than their competitors in order to earn the 
same amount for reinvestment or distribution to shareholders.''
  Strengthening the economic viability and competitiveness of United 
States-flag vessel operations requires us to adapt the tax regime 
governing our merchant marine to the realities of today's international 
shipping environment.
  Earlier this year, I introduced H.R. 2159, which is intended to 
assist American vessel owners to accumulate the private capital 
necessary to build modern, efficient and economical commercial vessels 
in United States shipyards. It would do so by amending the existing 
merchant marine Capital Construction Fund (CCF) program. The existing 
program allows an American citizen to deposit the earnings from various 
United States-built, United States-flag vessels into a tax deferred CCF 
to be used solely to build vessels in American shipyards. The deferred 
tax is recouped by the Treasury through reduced depreciation because 
the tax basis of vessels built with CCF monies is reduced on a dollar-
for-dollar basis.
  The provisions of H.R. 2159 are incorporated into the legislation we 
are introducing today. It will, among other things, allow earnings from 
the operation of United States-flag foreign built commercial vessels, 
and the amount of the duty arising from foreign ship repairs, to be 
deposited into a Capital Construction Fund in order to increase the 
amount of capital available to build vessels in our country. Equally 
important, my legislation will allow CCF monies to be withdrawn to 
build, in the United States, a vessel to be operated in the oceangoing 
domestic trades in order to further enhance the modernization and 
growth of this important segment of our maritime industry. It will 
further allow these funds to be used to acquire containers or trailers 
for use on a United States-flag vessel, and allows these monies to be 
used in conjunction with the lease of a United States-built vessel, or 
trailer or container, in order to better reflect the realities of 
current ship financing arrangements. Finally, in order to ensure that 
the full intended benefits of these changes and the Capital 
Construction Fund are realized, our legislation removes the Capital 
Construction Fund as an alternative minimum tax adjustment item.
  In addition, this bill will increase international competitiveness by 
allowing the owner of any United States-flag vessel engaged in the 
foreign trades to elect to fully expense United States-flag vessels in 
the year in which they acquired and documented under the United States-
flag. Today, the United States has a ten-year depreciation schedule 
while foreign nations generally allow much more aggressive depreciation 
schedules. In addition, countries such as the Bahamas, Cyprus, Liberia 
and Panama which register a significant percentage of the world's 
shipping against which United States-flag vessels must compete are 
totally exempt from all income taxes.
  To increase the employment opportunities for American merchant 
mariners aboard American owned vessels engaged in the foreign trades, 
this bill would extend the existing foreign source income exclusion to 
merchant seamen. At present, this exclusion, contained in section 911 
of the Internal Revenue Code, is available to Americans working outside 
the United States. As a result, it costs vessel operators considerably 
more to hire Americans than it costs foreign vessel operators to hire 
nationals from the many countries that limit or exempt income taxation 
imposed on their mariners. Clearly, one of the goals of the existing 
section 911 is to promote America's national interests through the 
employment of American citizens. Ensuring that the United States has a 
sufficient number of loyal, trained American merchant mariners to crew 
the government-owned and private vessels needed during war or other 
emergency is a key component of America's sealift capability. Extending 
section 911 to American mariners will, by increasing their opportunity 
for employment, augment America's available manpower and seapower 
force.
  Finally, the bill recognizes that the tax benefits otherwise 
available through the legislation can be rendered meaningless through 
the operation of the Alternative Minimum Tax (AMT). To further enhance 
the competitiveness of American flag vessel operations, our legislation 
repeals the AMT with respect to shipping income earned from the 
operation of U.S.-flag vessels in the foreign trades. Without this 
provision, the maritime industry might find that the other changes 
contemplated in this legislation are but hollow promises.
  Today, American vessels and American merchant mariners are forced to 
compete in an environment largely dominated by heavily subsidized and 
foreign state-owned fleets as well as fleets registered in flag-of-
convenience countries that are effectively tax havens for these ships. 
As a result, U.S.-flag ships ply the oceans at a significant economic 
disadvantage. Further erosion of our seapower threatens America's 
defense capabilities and the economy of states like Louisiana. In 
response, we can and should take aggressive action in this area and the 
legislation being introduced today is a positive step in that 
direction.
  I intend to request Chairman Archer to schedule a hearing before the 
Ways and Means Committee next year to explore the ways in which the tax 
code hinders our competitiveness on the open seas. I look forward to 
working with Congressman Jefferson and all of my colleagues to see that 
meaningful tax relief is enacted for the maritime industry.

                          ____________________