[Congressional Record Volume 149, Number 170 (Friday, November 21, 2003)]
[Senate]
[Pages S15415-S15418]
From the Congressional Record Online through the Government Publishing Office [www.gpo.gov]

      By Mr. SMITH (for himself and Mr. Breaux):
  S. 1922. A bill to amend the Internal Revenue Code of 1986 to comply 
with the World Trade Organization rulings on the FSC/ETI benefit in a 
manner that preserves manufacturing jobs and production activities in 
the United States, and for other purposes; to the Committee on Finance.
  Mr. SMITH. Mr. President, I rise today to introduce The American 
Manufacturing Jobs Bill of 2003--which will

[[Page S15416]]

provide a tax rate cut for all manufacturers who employ American 
workers. I am pleased to be joined in this effort by Senator John 
Breaux. On October 1, 2003, the Senate Finance Committee approved on a 
bipartisan basis S. 1673, the centerpiece of which resolves the FSC/ETI 
issue by replacing the export tax benefit with a reduction in the tax 
burden on domestic manufacturing companies.
  I applaud S. 1673, a balanced piece of legislation crafted by 
Chairman Charles Grassley, R-IA, and ranking member Senator Max Baucus, 
D-MT. I am, however, concerned that the domestic manufacturing benefit 
in S. 1673 is not applied equally to all U.S. manufacturers. This bill 
includes a provision--a ``haircut''--that provides less of a benefit to 
companies that also manufacture abroad.
  For example, a company that has 55 percent of its manufacturing in 
the United States and 45 percent abroad will calculate its benefit 
under the bill and then reduce that benefit by a fraction--the 
numerator of which is the gross receipts from domestic manufacturing 
over the same derived from worldwide manufacturing.
  This company thus suffers twice. First, the domestic manufacturing 
benefit in S. 1673 is less valuable than the benefit currently provided 
under FSC/ETI. Second, this company's manufacturing benefit is further 
reduced by the ``haircut'' merely because it also has overseas 
manufacturing operations in order to be closer to their markets.
  The ``haircut'' is a discriminatory measure that hurts both foreign-
owned and U.S.-owned companies alike. It is structured so that the more 
a company manufactures abroad, the less of a manufacturing rate cut it 
gets. The ``haircut'' makes the United States a less competitive 
location for current and future investment because multinational 
companies will believe they are being ``cheated'' and discriminated 
against.
  At a time when American manufacturing jobs are leaving our country in 
record numbers, Congress should support all companies that employ 
Americans. U.S. companies with global operations employ more than 23 
million Americans--9 million of which are in manufacturing jobs--this 
is tantamount to three out of every five manufacturing jobs in this 
country. Foreign-owned companies with U.S. operations employ more than 
2 million manufacturing workers in the United States. It is these many 
of millions of manufacturing workers who will suffer if the ``haircut'' 
remains and companies are therefore discouraged to invest in the United 
States.
  Moreover, the ``haircut'' is inconsistent with historic tax and trade 
policies to encourage U.S. companies to open up facilities outside the 
United States. In fact, there is an entire department--the Department 
of Commerce--set up to assist U.S. companies going global and then to 
promote and facilitate those same companies' efforts once they have 
established themselves in-country. I am also concerned that the 
``haircut'' invites mirror legislation in other countries and may 
invite another WTO challenge to this legislation.
  I believe we have a duty to encourage the retention and creation of 
manufacturing jobs in the United States. We must not treat U.S. jobs 
created by multinational companies as ``less worthy'' than U.S. jobs 
created by strictly domestic manufacturers. Congress should be in the 
business of rewarding all well-paid, manufacturing jobs that are 
created in the United States, not just those created by domestic 
manufacturers. I believe that by eliminating the ``haircut'' and 
providing a tax rate cut for all manufacturers who employ American 
workers, we can help to revitalize the U.S. manufacturing sector. I ask 
unanimous consent that the full text of this important legislation be 
printed in the Record.
  There being no objection, the bill was ordered to be printed in the 
Record, as follows:

                                S. 1922

       Be it enacted by the Senate and House of Representatives of 
     the United States of America in Congress assembled,

     SECTION 1. SHORT TITLE; AMENDMENT OF 1986 CODE.

       (a) Short Title.--This Act may be cited as the ``American 
     Manufacturing Jobs Act of 2003''.
       (b) Amendment of 1986 Code.--Except as otherwise expressly 
     provided, whenever in this Act an amendment or repeal is 
     expressed in terms of an amendment to, or repeal of, a 
     section or other provision, the reference shall be considered 
     to be made to a section or other provision of the Internal 
     Revenue Code of 1986.

     SEC. 2. REPEAL OF EXCLUSION FOR EXTRATERRITORIAL INCOME.

       (a) In General.--Section 114 is hereby repealed.
       (b) Conforming Amendments.--
       (1)(A) Subpart E of part III of subchapter N of chapter 1 
     (relating to qualifying foreign trade income) is hereby 
     repealed.
       (B) The table of subparts for such part III is amended by 
     striking the item relating to subpart E.
       (2) The table of sections for part III of subchapter B of 
     chapter 1 is amended by striking the item relating to section 
     114.
       (3) The second sentence of section 56(g)(4)(B)(i) is 
     amended by striking ``or under section 114''.
       (4) Section 275(a) is amended--
       (A) by inserting ``or'' at the end of paragraph (4)(A), by 
     striking ``or'' at the end of paragraph (4)(B) and inserting 
     a period, and by striking subparagraph (C), and
       (B) by striking the last sentence.
       (5) Paragraph (3) of section 864(e) is amended--
       (A) by striking:
       ``(3) Tax-exempt assets not taken into account.--
       ``(A) In general.--For purposes of''; and inserting:
       ``(3) Tax-exempt assets not taken into account.--For 
     purposes of'', and
       (B) by striking subparagraph (B).
       (6) Section 903 is amended by striking ``114, 164(a),'' and 
     inserting ``164(a)''.
       (7) Section 999(c)(1) is amended by striking 
     ``941(a)(5),''.
       (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 September 17, 2003, and at all 
     times thereafter.
       (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, during the 1-year period beginning 
     on the date of the enactment of this Act, revoke such 
     election, effective as of such date of enactment, and
       (B) if the corporation does revoke such election--
       (i) such corporation shall be treated as a domestic 
     corporation transferring (as of such date of enactment) all 
     of its property to a foreign corporation in connection with 
     an exchange described in section 354 of such Code, 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 (other than a reduction in tax 
     under section 114 of such Code, as in effect on the day 
     before the date of the enactment of this Act).
       (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, 2007, for purposes of chapter 1 of such Code, a 
     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 2002 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 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:

      The phaseout
      percentage is:
         80 ...........................................................

[[Page S15417]]

         80 ...........................................................
         60............................................................

       (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.
       ``(C) Short taxable year.--The Secretary shall prescribe 
     guidance for the computation of the transition amount in the 
     case of a short taxable year.
       (4) Base period amount.--For purposes of this subsection, 
     the base period amount is the FSC/ETI benefit for the 
     taxpayer's taxable year beginning in calendar year 2002.
       (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 significant part 
     by the taxpayer.
       (6) Special rule for agricultural and horticultural 
     cooperatives.--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 in a 
     manner similar to section 199(h)(2) of such Code, as added by 
     this Act. Such determinations shall be in accordance with 
     such requirements and procedures as the Secretary may 
     prescribe.
       (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) 
     or section 5(c)(1)(B) of the FSC Repeal and Extraterritorial 
     Income Exclusion Act of 2000, except that for purposes of 
     this paragraph the phaseout percentage for 2003 shall be 
     treated as being equal to 100 percent.
       (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--
       (A) 100 percent of such beneficiary's base period amount 
     for calendar year 2003, reduced by
       (B) the FSC/ETI benefit 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 VI of subchapter B of chapter 1 
     (relating to itemized deductions for individuals and 
     corporations) is amended by adding at the end the following 
     new section:

     ``SEC. 199. INCOME ATTRIBUTABLE TO DOMESTIC PRODUCTION 
                   ACTIVITIES.

       ``(a) Allowance of Deduction.--
       ``(1) In general.--There shall be allowed as a deduction an 
     amount equal to 9 percent of the qualified production 
     activities income of the taxpayer for the taxable year.
       ``(2) Phasein.--In the case of taxable years beginning in 
     2003, 2004, 2005, 2006, 2007, or 2008, paragraph (1) shall be 
     applied by substituting for the percentage contained therein 
     the transition percentage determined under the following 
     table:

      The transitions
      percentage is:
        1  or 2004.....................................................
        2 .............................................................
        3 .............................................................
        6. or 2008.....................................................

       ``(b) Deduction Limited to Wages Paid.--
       ``(1) In general.--The amount of the deduction allowable 
     under subsection (a) for any taxable year shall not exceed 50 
     percent of the W-2 wages of the employer for the taxable 
     year.
       ``(2) W-2 wages.--For purposes of paragraph (1), the term 
     `W-2 wages' means the sum of the aggregate amounts the 
     taxpayer is required to include on statements under 
     paragraphs (3) and (8) of section 6051(a) with respect to 
     employment of employees of the taxpayer during the taxpayer's 
     taxable year.
       ``(3) Special rules.--
       ``(A) Pass-thru entities.--In the case of an S corporation, 
     partnership, estate or trust, or other pass-thru entity, the 
     limitation under this subsection shall apply at the entity 
     level.
       ``(B) Acquisitions and dispositions.--The Secretary shall 
     provide for the application of this subsection in cases where 
     the taxpayer acquires, or disposes of, the major portion of a 
     trade or business or the major portion of a separate unit of 
     a trade or business during the taxable year.
       ``(c) Qualified Production Activities Income.--For purposes 
     of this section, the term `qualified production activities 
     income' means an amount equal to the portion of the modified 
     taxable income of the taxpayer which is attributable to 
     domestic production activities.
       ``(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 proper share of other deductions, expenses, and 
     losses that are not directly allocable to such receipts or 
     another class of income.
       ``(2) Allocation method.--The Secretary shall prescribe 
     rules for the proper allocation of items of income, 
     deduction, expense, and loss for purposes of determining 
     income attributable to domestic production activities.
       ``(3) Special rules for determining costs.--
       ``(A) In general.--For purposes of determining costs under 
     clause (i) of paragraph (1)(B), any item or service brought 
     into the United States shall be treated as acquired by 
     purchase, and its cost shall be treated as not less than its 
     fair market value immediately after 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) Exports for further manufacture.--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 rules for certain property.--In the case of 
     any qualifying production property described in subsection 
     (f)(1)(C)--
       ``(A) such property shall be treated for purposes of 
     paragraph (1) as produced in significant part by the taxpayer 
     within the United States if more than 50 percent of the 
     aggregate development and production costs are incurred by 
     the taxpayer within the United States, and
       ``(B) if a taxpayer acquires such property before such 
     property begins to generate substantial gross receipts, any 
     development or production costs incurred before the 
     acquisition shall be treated as incurred by the taxpayer for 
     purposes of subparagraph (A) and paragraph (1).
       ``(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 property described in section 168(f) (3) or (4), 
     including any underlying copyright or trademark.
       ``(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,
       ``(C) electricity,
       ``(D) water supplied by pipeline to the consumer,
       ``(E) utility services, or
       ``(F) any film, tape, recording, book, magazine, newspaper, 
     or similar property the market for which is primarily topical 
     or otherwise essentially transitory in nature.
       ``(g) Definitions and Special Rules.--
       ``(1) Application of section to pass-thru entities.--In the 
     case of an S corporation, partnership, estate or trust, or 
     other pass-thru entity--

[[Page S15418]]

       ``(A) subject to the provisions of paragraph (2) and 
     subsection (b)(3)(A), this section shall be applied at the 
     shareholder, partner, or similar level, and
       ``(B) the Secretary shall prescribe rules for the 
     application of this section, including rules relating to--
       ``(i) restrictions on the allocation of the deduction to 
     taxpayers at the partner or similar level, and
       ``(ii) additional reporting requirements.
       ``(2) Exclusion for patrons of agricultural and 
     horticultural cooperatives.--
       ``(A) In general.--If any amount described in paragraph (1) 
     or (3) of section 1385(a)--
       ``(i) is received by a person from an organization to which 
     part I of subchapter T applies which is engaged in the 
     marketing of agricultural or horticultural products, and
       ``(ii) is allocable to the portion of the qualified 
     production activities income of the organization which is 
     deductible under subsection (a) and designated as such by the 
     organization in a written notice mailed to its patrons during 
     the payment period described in section 1382(d),

     then such person shall be allowed an exclusion from gross 
     income with respect to such amount. The taxable income of the 
     organization shall not be reduced under section 1382 by the 
     portion of any such amount with respect to which an exclusion 
     is allowable to a person by reason of this paragraph.
       ``(B) Special rules.--For purposes of applying subparagraph 
     (A), in determining the qualified production activities 
     income of the organization under this section--
       ``(i) there shall not be taken into account in computing 
     the organization's modified taxable income any deduction 
     allowable under subsection (b) or (c) of section 1382 
     (relating to patronage dividends, per-unit retain 
     allocations, and nonpatronage distributions), and
       ``(ii) the organization shall be treated as having 
     manufactured, produced, grown, or extracted in whole or 
     significant part any qualifying production property marketed 
     by the organization which its patrons have so manufactured, 
     produced, grown, or extracted.
       ``(3) Special rule for affiliated groups.--
       ``(A) In general.--All members of an expanded affiliated 
     group shall be treated as a single corporation for purposes 
     of this section.
       ``(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) and (4) of section 
     1504(b).
       ``(4) 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.
       ``(5) Ordering rule.--The amount of any other deduction 
     allowable under this chapter shall be determined as if this 
     section had not been enacted.
       ``(6) Trade or business requirement.--This section shall be 
     applied by only taking into account items which are 
     attributable to the actual conduct of a trade or business.
       ``(7) Possessions, etc.--
       ``(A) In general.--For purposes of subsections (d) and (e), 
     the term `United States' includes the Commonwealth of Puerto 
     Rico, Guam, American Samoa, the Commonwealth of the Northern 
     Mariana Islands, and the Virgin Islands of the United States.
       ``(B) Special rules for applying wage limitation.--For 
     purposes of applying the limitation under subsection (b) for 
     any taxable year--
       ``(i) the determination of W-2 wages of a taxpayer shall be 
     made without regard to any exclusion under section 3401(a)(8) 
     for remuneration paid for services performed in a 
     jurisdiction described in subparagraph (A), and
       ``(ii) in determining the amount of any credit allowable 
     under section 30A or 936 for the taxable year, there shall 
     not be taken into account any wages which are taken into 
     account in applying such limitation.
       ``(8) 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 American 
     Manufacturing Jobs 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) Minimum Tax.--Section 56(g)(4)(C) (relating to 
     disallowance of items not deductible in computing earnings 
     and profits) is amended by adding at the end the following 
     new clause:
       ``(v) Deduction for domestic production.--Clause (i) shall 
     not apply to any amount allowable as a deduction under 
     section 199.''.
       (c) Clerical Amendment.--The table of sections for part VI 
     of subchapter B of chapter 1 is amended by adding at the end 
     the following new item:

``Sec. 199. Income attributable to domestic production activities.''.
       (d) Effective Date.--
       (1) In general.--The amendments made by this section shall 
     apply to taxable years ending after the date of the enactment 
     of this Act.
       (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.
                                 ______