RealTime IT News

Congress Gives Tax Break to Tech Industry

The U.S. Senate approved today a one-year tax break backed by the tech industry that proponents say will repatriate more than $300 billion into the U.S. economy and create as many as a half million new jobs. Opponents claim the bill rewards companies for outsourcing jobs overseas.

The tax provision, part of a much larger bill targeting European Union (EU) trade sanctions, reduces the tax on foreign profits for U.S. multinationals from 35 percent to 5.25 percent.

The House passed the same bill last week and it now goes to President Bush, who is expected to sign the legislation.

Both the Senate and the House also eliminated a provision in the legislation sponsored by Sen. Chris Dodd (D-Conn.) prohibiting federal contractors from moving government-funded IT contracts overseas.

"As corporate discretionary spending makes a slow but steady recovery, we are pleased Congress has passed legislation that stokes America's economic engine," Harris Miller, president of the Information Technology Association of America (ITAA), said in a statement. "We look forward to this bill becoming law as soon as possible."

The tech tax break is also one of the top legislative priorities for TechNet, the influential political lobbying group of CEOs and senior partners whose members include Intel , Cisco , HP and Microsoft .

"The Invest in USA proposal will result in a tremendous inflow of capital to the United States and significantly boost our national economy. Enactment of this legislation has been among TechNet's top priorities as a proposal that will have a major, near-term impact on the economy," TechNet CEO Rick White said in a statement.

Last week, when the House approved the measure, Miller said, "This repatriation provision will channel large amounts of investment capital into the build-out of American companies, product and service offerings, jobs and communities. This is particularly important to IT companies -- companies that often generate 50 percent or more of their revenues from sales overseas."

In a March letter to President Bush, TechNet wrote, "Under this proposal, impact on federal revenues is expected to be positive for the first year and negligible over a 10-year period; at current taxation levels, these dollars would just remain overseas," TechNet wrote. "In short, here's a way to enable a tremendous amount of domestic spending without increasing taxes, reducing federal revenues or taking money away from needed federal programs."

The letter added that, once the money is repatriated, specific targeted incentives can ensure that it is invested for maximum economic impact.

The EU sanctions went into effect March 1, when the EU began collecting a 5 percent penalty tariff on a wide variety of U.S. goods. The penalty increases by one percent per month over the next year.

The sanctions followed a ruling last year by the World Trade Organization that called an annual $5 billion tax break given to U.S. exporters an illegal export subsidy. The WTO set a March 1 deadline for Washington to change its tax code or be penalized.