[Congressional Record Volume 149, Number 64 (Thursday, May 1, 2003)]
[Senate]
[Pages S5657-S5660]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. HOLLINGS:
  S. 970. A bill to amend the Internal Revenue Code of 1986 to preserve 
jobs and production activities in the United States; to the Committee 
on Finance.
  Mr. HOLLINGS. Mr. President, March marked the 32nd consecutive month, 
since July 2000), that manufacturing employment has declined in the 
United States. This is the longest consecutive monthly decline in the 
post

[[Page S5658]]

World War II era. Already, more than 2 million manufacturing jobs are 
gone.
  In South Carolina, we have seen a steady erosion of our manufacturing 
job base, and if we don't come up with new concepts to create and 
maintain domestic manufacturing jobs, America will go out of business.
  For all of 2002, industrial production fell 0.6 percent following a 
3.5 percent decline in 2001. That represented the first back-to-back 
annual declines in industrial output since 1974-1975.
  Quite frankly, this is unacceptable.
  We must act to save our manufacturing jobs. Earlier this Congress, I 
introduced S. 592, the ``Save American Manufacturing Act of 2003,'' 
that seeks to eliminate the tax incentives for off-shore production. 
Today, I introduce complementary legislation to provide tax incentives 
to produce in the United States.
  The legislation I'm introducing today would provide tax benefits to 
domestic producers. These tax incentives would become increasingly 
beneficial as the percentage of manufacturing done in the United States 
increases. Conversely, as the percentage of domestic production 
decreases the incentives would also decrease.
  This mechanism will provide a strong incentive for manufacturers to 
maintain U.S. production and to return runaway production to the United 
States.
  Our communities, our industries and our workers are being harmed by 
the erosion of our manufacturing base. Today's legislation is one 
additional way that we can provide assistance to these vital groups.
  This legislation is the companion to H.R. 1769 introduced earlier 
this session in the House by Representatives Rangel and Crane.
  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. 970

       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 ``Job Protection Act of 
     2003''.

     SEC. 2. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

       (a) In General.--Section 114 of the Internal Revenue Code 
     of 1986 is hereby repealed.
       (b) Conforming Amendments.--
       (1) Subpart E of part III of subchapter N of chapter 1 of 
     such Code (relating to qualifying foreign trade income) is 
     hereby repealed.
       (2) The table of subparts for such part III is amended by 
     striking the item relating to subpart E.
       (3) The table of sections for part III of subchapter B of 
     chapter 1 of such Code is amended by striking the item 
     relating to section 114.
       (c) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to transactions occurring after the date of the 
     enactment of this Act.
       (2) Binding contracts.--The amendments made by this section 
     shall not apply to any transaction in the ordinary course of 
     a trade or business which occurs pursuant to a binding 
     contract--
       (A) which is between the taxpayer and a person who is not a 
     related person (as defined in section 943(b)(3) of such Code, 
     as in effect on the day before the date of the enactment of 
     this Act), and
       (B) which is in effect on April 11, 2003, and at all times 
     thereafter.

     For purposes of this paragraph, a binding contract shall 
     include a purchase option, renewal option, or replacement 
     option which is included in such contract.
       (d) Revocation of Section 943(e) Elections.--
       (1) In general.--In the case of a corporation that elected 
     to be treated as a domestic corporation under section 943(e) 
     of the Internal Revenue Code of 1986 (as in effect on the day 
     before the date of the enactment of this Act)--
       (A) the corporation may revoke such election, effective as 
     of the date of the enactment of this Act, and
       (B) if the corporation does revoke such election--
       (i) such corporation shall be treated as a domestic 
     corporation transferring (as of the date of the enactment of 
     this Act) all of its property to a foreign corporation in 
     connection with an exchange described in section 354 of the 
     Internal Revenue Code of 1986, and
       (ii) no gain or loss shall be recognized on such transfer.
       (2) Exception.--Subparagraph (B)(ii) of paragraph (1) shall 
     not apply to gain on any asset held by the revoking 
     corporation if--
       (A) the basis of such asset is determined in whole or in 
     part by reference to the basis of such asset in the hands of 
     the person from whom the revoking corporation acquired such 
     asset,
       (B) the asset was acquired by transfer (not as a result of 
     the election under section 943(e) of such Code) occurring on 
     or after the 1st day on which its election under section 
     943(e) of such Code was effective, and
       (C) a principal purpose of the acquisition was the 
     reduction or avoidance of tax.
       (e) General Transition.--
       (1) In general.--In the case of a taxable year ending after 
     the date of the enactment of this Act and beginning before 
     January 1, 2009, for purposes of chapter 1 of such Code, each 
     current FSC/ETI beneficiary shall be allowed a deduction 
     equal to the transition amount determined under this 
     subsection with respect to such beneficiary for such year.
       (2) Current fsc/eti beneficiary.--The term ``current FSC/
     ETI beneficiary'' means any corporation which entered into 
     one or more transactions during its taxable year beginning in 
     calendar year 2001 with respect to which FSC/ETI benefits 
     were allowable.
       (3) Transition amount.--For purposes of this subsection--
       (A) In general.--The transition amount applicable to any 
     current FSC/ETI beneficiary for any taxable year is the 
     phaseout percentage of the adjusted base period amount.
       (B) Phaseout percentage.--
       (i) In general.--In the case of a taxpayer using the 
     calendar year as its taxable year, the phaseout percentage 
     shall be determined under the following table:

``Years:                                    The phaseout percentage is:
2004 and 2005.......................................................100
2006.................................................................75
2007.................................................................75
2008.................................................................50
2009 and thereafter...................................................0

       (ii) Special rule for 2003.--The phaseout percentage for 
     2003 shall be the amount that bears the same ratio to 
     100 percent as the number of days after the date of the 
     enactment of this Act bears to 365.
       (iii) Special rule for fiscal year taxpayers.--In the case 
     of a taxpayer not using the calendar year as its taxable 
     year, the phaseout percentage is the weighted average of the 
     phaseout percentages determined under the preceding 
     provisions of this paragraph with respect to calendar years 
     any portion of which is included in the taxpayer's taxable 
     year. The weighted average shall be determined on the basis 
     of the respective portions of the taxable year in each 
     calendar year.
       (4) Adjusted base period amount.--For purposes of this 
     subsection--
       (A) In general.--In the case of a taxpayer using the 
     calendar year as its taxable year, the adjusted base period 
     amount for any taxable year is the base period amount 
     multiplied by the applicable percentage, as determined in the 
     following table:

``Years:                                  The applicable percentage is:
2003................................................................100
2004................................................................100
2005................................................................105
2006................................................................110
2007................................................................115
2008................................................................120
2009 and thereafter...................................................0

       (B) Base period amount.--The base period amount is the 
     aggregate FSC/ETI benefits for the taxpayer's taxable year 
     beginning in calendar year 2001.
       (C) Special rules for fiscal year taxpayers, etc.--Rules 
     similar to rules of clauses (ii) and (iii) of paragraph 
     (3)(B) shall apply for purposes of this paragraph.
       (5) FSC/ETI benefit.--For purposes of this subsection, the 
     term `FSC/ETI benefit' means--
       (A) amounts excludable from gross income under section 114 
     of such Code, and
       (B) the exempt foreign trade income of related foreign 
     sales corporations from property acquired from the taxpayer 
     (determined without regard to section 923(a)(5) of such Code 
     (relating to special rule for military property), as in 
     effect on the day before the date of the enactment of the FSC 
     Repeal and Extraterritorial Income Exclusion Act of 2000).

     In determining the FSC/ETI benefit there shall be excluded 
     any amount attributable to a transaction with respect to 
     which the taxpayer is the lessor unless the leased property 
     was manufactured or produced in whole or in part by the 
     taxpayer.
       (6) Special rule for farm cooperatives.--Under regulations 
     prescribed by the Secretary, determinations under this 
     subsection with respect to an organization described in 
     section 943(g)(1) of such Code, as in effect on the day 
     before the date of the enactment of this Act, shall be made 
     at the cooperative level and the purposes of this subsection 
     shall be carried out by excluding amounts from the gross 
     income of its patrons.
       (7) Certain rules to apply.--Rules similar to the rules of 
     section 41(f) of such Code shall apply for purposes of this 
     subsection.
       (8) Coordination with binding contract rule.--The deduction 
     determined under paragraph (1) for any taxable year shall be 
     reduced by the phaseout percentage of any FSC/ETI benefit 
     realized for the taxable year by reason of subsection (c)(2). 
     The preceding sentence shall not apply to any FSC/ETI benefit 
     attributable to a transaction described in the last sentence 
     of paragraph (5).
       (9) Special rule for taxable year which includes date of 
     enactment.--In the case of a taxable year which includes the 
     date of the enactment of this Act, the deduction allowed 
     under this subsection to any current FSC/ETI beneficiary 
     shall in no event exceed--

[[Page S5659]]

       (A) 100 percent of such beneficiary's adjusted base period 
     amount for calendar year 2003, reduced by
       (B) the aggregate FSC/ETI benefits of such beneficiary with 
     respect to transactions occurring during the portion of the 
     taxable year ending on the date of the enactment of this Act.

     SEC. 3. DEDUCTION RELATING TO INCOME ATTRIBUTABLE TO UNITED 
                   STATES PRODUCTION ACTIVITIES.

       (a) In General.--Part VIII of subchapter B of chapter 1 of 
     the Internal Revenue Code of 1986 (relating to special 
     deductions for corporations) is amended by adding at the end 
     the following new section:

     ``SEC. 250. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION 
                   ACTIVITIES.

       ``(a) In General.--In the case of a corporation, there 
     shall be allowed as a deduction an amount equal to 10 percent 
     of the qualified production activities income of the 
     corporation for the taxable year.
       ``(b) Phasein.--In the case of taxable years beginning in 
     2006, 2007, 2008 or 2009, subsection (a) shall be applied by 
     substituting for the percentage contained therein the 
     transition percentage determined under the following table:

``Taxable years beginning in:             The transition percentage is:
2006..................................................................1
2007..................................................................2
2008..................................................................4
2009..................................................................9

       ``(c) Qualified Production Activities Income.--For purposes 
     of this section, the term `qualified production activities 
     income' means the product of--
       ``(1) the portion of the modified taxable income of the 
     taxpayer which is attributable to domestic production 
     activities, and
       ``(2) the domestic/foreign fraction.
       ``(d) Determination of Income Attributable to Domestic 
     Production Activities.--For purposes of this section--
       ``(1) In general.--The portion of the modified taxable 
     income which is attributable to domestic production 
     activities is so much of the modified taxable income for the 
     taxable year as does not exceed--
       ``(A) the taxpayer's domestic production gross receipts for 
     such taxable year, reduced by
       ``(B) the sum of--
       ``(i) the costs of goods sold that are allocable to such 
     receipts,
       ``(ii) other deductions, expenses, or losses directly 
     allocable to such receipts, and
       ``(iii) a ratable portion of other deductions, expenses, 
     and losses that are not directly allocable to such receipts 
     or another class of income.
       ``(2) Allocation method.--Except as provided in 
     regulations, allocations under clauses (ii) and (iii) of 
     paragraph (1)(B) shall be made under the principles used in 
     determining the portion of taxable income from sources within 
     and without the United States.
       ``(3) Special rule.--
       ``(A) For purposes of determining costs under clause (i) of 
     paragraph (1)(B), any item or service brought into the United 
     States without a transfer price meeting the requirements of 
     section 482 shall be treated as acquired by purchase, and its 
     cost shall be treated as not less than its value when it 
     entered the United States. A similar rule shall apply in 
     determining the adjusted basis of leased or rented property 
     where the lease or rental gives rise to domestic production 
     gross receipts.
       ``(B) In the case of any property described in subparagraph 
     (A) that had been exported by the taxpayer for further 
     manufacture, the increase in cost (or adjusted basis) under 
     subparagraph (A) shall not exceed the difference between the 
     value of the property when exported and the value of the 
     property when brought back into the United States after the 
     further manufacture.
       ``(4) Modified taxable income.--The term `modified taxable 
     income' means taxable income computed without regard to the 
     deduction allowable under this section.
       ``(e) Domestic Production Gross Receipts.--For purposes of 
     this section--
       ``(1) In general.--The term `domestic production gross 
     receipts' means the gross receipts of the taxpayer which are 
     derived from--
       ``(A) any sale, exchange, or other disposition of, or
       ``(B) any lease, rental or license of,
     qualifying production property which was manufactured, 
     produced, grown, or extracted in whole or in significant part 
     by the taxpayer within the United States.
       ``(2) Special rule.--The term `domestic production gross 
     receipts' includes gross receipts of the taxpayer from the 
     sale, exchange, or other disposition of replacement parts 
     if--
       ``(A) such parts are sold by the taxpayer as replacement 
     parts for qualified production property produced or 
     manufactured in whole or significant part by the taxpayer in 
     the United States, and
       ``(B) the taxpayer (or a related party) owns the designs 
     for such parts.
       ``(3) Related party.--The term `related party' means any 
     corporation which is a member of the taxpayer's expanded 
     afiliated group.
       ``(f) Qualifying Production Property.--For purposes of this 
     section--
       ``(1) In general.--Except as otherwise provided in this 
     paragraph, the term `qualifying production property' means--
       ``(A) any tangible personal property,
       ``(B) any computer software, and
       ``(C) any films, tapes, records, or similar reproductions.
       ``(2) Exclusions from qualifying production property.--The 
     term `qualifying production property' shall not include--
       ``(A) consumable property that is sold, leased, or licensed 
     by the taxpayer as an integral part of the provision of 
     services,
       ``(B) oil or gas (or any primary product thereof),
       ``(C) electricity,
       ``(D) water supplied by pipeline to the consumer,
       ``(E) any unprocessed timber which is softwood,
       ``(F) utility services, or
       ``(G) any property (not described in paragraph (1)(B)) 
     which is a film, tape, recording, book, magazine, newspaper, 
     or similar property the market for which is primarily topical 
     or otherwise essentially transitory in nature.

     For purposes of subparagraph (E), the term `unprocessed 
     timber' means any log, cant, or similar form of timber.
       ``(g) Domestic/Foreign Fraction.--For purposes of this 
     section--
       ``(1) In general.--The term `domestic/foreign fraction' 
     means a fraction--
       ``(A) the numerator of which is the value of the domestic 
     production of the taxpayer, and
       ``(B) the denominator of which is the value of the 
     worldwide production of the taxpayer.
       ``(2) Value of domestic production.--The value of domestic 
     production is the excess of--
       ``(A) the domestic production gross receipts, over
       ``(B) the cost of purchased inputs allocable to such 
     receipts that are deductible under this chapter for the 
     taxable year.
       ``(3) Purchased inputs.--
       ``(A) In general.--Purchased inputs are any of the 
     following items acquired by purchase:
       ``(i) Services (other than services of employees) used in 
     manufacture, production, growth, or extraction activities.
       ``(ii) Items consumed in connection with such activities.
       ``(iii) Items incorporated as part of the property being 
     manufactured, produced, grown, or extracted.
       ``(B) Special rule.--Rules similar to the rules of 
     subsection (d)(3) shall apply for purposes of this 
     subsection.
       ``(4) Value of worldwide production.--
       ``(A) In general.--The value of worldwide production shall 
     be determined under the principles of paragraph (2), except 
     that--
       ``(i) worldwide production gross receipts shall be taken 
     into account, and
       ``(ii) paragraph (3)(B) shall not apply.
       ``(B) Worldwide production gross receipts.--The worldwide 
     production gross receipts is the amount that would be 
     determined under subsection (e) if such subsection were 
     applied without any reference to the United States.
       ``(5) Special rule for affiliated groups.--
       ``(A) In general.--In the case of a taxpayer that is a 
     member of an expanded affiliated group, the domestic/foreign 
     fraction shall be the amount determined under the preceding 
     provisions of this subsection by treating all members of such 
     group as a single corporation.
       ``(B) Expanded affiliated group.--The term `expanded 
     affiliated group' means an affiliated group as defined in 
     section 1504(a), determined--
       ``(i) by substituting `50 percent' for `80 percent' each 
     place it appears, and
       ``(ii) without regard to paragraphs (2), (3), and (4) of 
     section 1504(b).
       ``(h) Definitions and Special Rules.--
       ``(1) United states.--For purposes of this section, the 
     term `United States' includes the Commonwealth of Puerto Rico 
     and any other possession of the United States.
       ``(2) Special rule for partnerships.--For purposes of this 
     section, a corporation's distributive share of any 
     partnership item shall be taken into account as if directly 
     realized by the corporation.
       ``(3) Coordination with minimum tax.--The deduction under 
     this section shall be allowed for purposes of the tax imposed 
     by section 55; except that for purposes of section 55, 
     alternative minimum taxable income shall be taken into 
     account in determining the deduction under this section.
       ``(4) Ordering rule.--The amount of any other deduction 
     allowable under this chapter shall be determined as if this 
     section had not been enacted.
       ``(5) Coordination with transition rules.--For purposes of 
     this section--
       ``(A) domestic production gross receipts shall not include 
     gross receipts from any transaction if the binding contract 
     transition relief of section 2(c)(2) of the Job Protection 
     Act of 2003 applies to such transaction, and
       ``(B) any deduction allowed under section 2(e) of such Act 
     shall be disregarded in determining the portion of the 
     taxable income which is attributable to domestic production 
     gross receipts.''.
       (b) Clerical Amendment.--The table of sections for part 
     VIII of subchapter B of chapter 1 of such Code is amended by 
     adding at the end the following new item:

``Sec. 250. Income attributable to domestic production activities.''.

       (c) Effective Date.--

[[Page S5660]]

       ``(1) In general.--The amendments made by this section 
     shall apply to taxable years beginning after 2005.
       ``(2) Application of section 15.--Section 15 of the 
     Internal Revenue Code of 1986 shall apply to the amendments 
     made by this section as if they were changes in a rate of 
     tax.
                                 ______