Bush Signs Tech Tax Break
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President Bush signed into law late Friday $136 billion in corporate tax breaks, including a one-year reduction from 35 percent to 5.25 percent on foreign profits for U.S. multinationals. The provision was strongly backed by the technology industry despite criticisms that the break rewards corporations that outsource jobs overseas.
Bush signed the legislation on Air Force One and did not issue a statement or comment on the bill. Sen. John Kerry (D-Mass.) had no direct comment on the signing but has said in the past he would repeal international tax breaks that favor companies offshoring jobs.
"Larger companies particularly will be benefited from the profit repatriation holiday," Bruce Hahn, director of public affairs at the tech trade group CompTia, said. "That's going to help them directly because a lot of the multinational companies have profits right now offshore that they just didn't want to pay U.S. taxes on."
With one-year reduction in rates, Hahn said, "They'll bring those [revenues] back now, and that money will be available for research and development and new product developments that will certainly help IT employment and help roll out new products which, in turn, will help all those who sell and service those products."
Hahn also said he was "delighted" over another provision in the legislation, which extends for another two years the ability of small companies to expense capital purchases up to $100,000 per year. Two years ago, Congress raised the expensing ceiling from $25,000 to $100,000.
"Capital equipment is normally something you have to depreciate over some useful life that is set by the IRS. It used to be that a small business could expense about $25,000 of its capital purchases," Hahn said. "Historically, about one-third [of those purchases] is software and hardware."
Hahn said the expensing provision doubly benefits CompTia members, the majority of whom represent small service and reseller organizations.
"Most of our small members sell and service other small businesses, so its going to boost their sales to their customers," Hahn said.
The tech tax breaks are part of a much larger bill targeting European Union (EU) trade sanctions against U.S. manufacturers. On March 1, the EU began collecting a five percent penalty tariff on a wide variety of U.S. goods, with the penalty increasing by one percent per month. The penalty tariff is currently at 12 percent.
The sanctions followed a ruling last year by the World Trade Organization (WTO) that called an annual $5 billion tax break given to U.S. exporters an illegal export subsidy. The new law replaces the 10-year, $49.2 billion export tax break with new breaks totaling $136 billion.
The EU announced Monday it would suspend the penalty tariffs in light of Bush signing the new bill, but warned the sanctions could return if an analysis of the legislation reveals other tax breaks that might be construed as export subsidies.
The final version of the bill also eliminated efforts by Democrats to attach anti-offshoring provisions to the legislation. In March, Sen. Christopher Dodd (D-Conn.) used the legislation to win an amendment in the Senate version prohibiting federal contractors from moving government-funded IT contracts overseas. The final version dropped the Dodd amendment.
Other efforts in the Senate, such as Bob Graham's (D-Fla.) to substitute payroll tax cuts for the foreign dividends tax break and Diane Feinstein's (D-Calif.) to require the foreign dividends brought back into the United States be specifically used for job creation, were defeated.