Senate Blocks Anti-Offshoring Measures

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The U.S. Senate rejected two Democratic efforts Wednesday to amend a
corporate tax bill containing key provisions favored by tech companies with
international operations.

The amendments sought to eliminate or severely
limit a one-year proposal to reduce foreign dividend taxes from 35 percent
to 5.25 percent.

If ultimately passed by Congress, proponents say the tax provision will
“repatriate” more than $300 billion into the U.S. economy and create as many
as a half million new jobs. As they did in March when
the same legislation came before the Senate, Democrats used the debate on
the bill as a platform to denounce offshoring, calling the provision to
reduce the tariffs a tax subsidy for companies moving jobs offshore.

Part of the much broader Jumpstart Our Business Strengths Act (JOBS), the
foreign dividends tax break has drawn the outspoken support of TechNet, the
influential network of CEOs and senior partners whose members include Intel
, Cisco , Hewlett-Packard and Microsoft .

TechNet was founded by Silicon
Valley venture capitalist John Doerr to lobby
Washington on national technology issues.

“Move your jobs overseas and we’ll give you a tax break,” Sen. John Dorgan
said as he threw his support behind an amendment by fellow Democrats John
Breaux of Lousiana and Diane Feinstein of California to “ensure the
repatriated tax breaks would be used for job creation.”

Republican John Ensign of Nevada countered that the Breaux-Feinstein
amendment was a “poison pill,” adding, “If the money is overseas, then let’s
lower the taxes.” George Allen (R-Va.) said the amendment was impracticable
because of its narrow definitions.

“The Breaux-Feinstein amendment would not allow companies to use their
profits for job training to upgrade the skills, capabilities and
productivity of their U.S. workers. They would not be able to fund start-up
U.S. businesses,” Allen said.

The amendment was defeated with 15 Democrats and Independent Jim Jeffords of
Vermont joining the unified Republican majority. Later in the day, a similar
majority defeated an amendment by Democrat Bob Graham of Florida to
substitute payroll tax cuts for the foreign dividends tax breaks. John Kerry
of Massachusetts, the presumptive Democratic presidential nominee, was
attending a Cinco de Mayo celebration in Los Angeles and was the lone
senator not voting on the amendments.

“The defeat of the Breaux-Feinstein Amendment clears the way for the Senate
to make it beneficial for business to bring their profits back to the United
States instead of investing those profits in other countries. The defeated
amendment would have made that effort much more difficult,” Allen said in a
statement after the vote.

Debate continues Thursday on the broader JOBS Act aimed at addressing
European Union trade sanctions that went into effect March 1, when the EU
began collecting a five 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
(WTO) 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. The Senate fix is the JOBS Act, which
alters portions of the corporate tax code in order to satisfy the WTO and
redistribute the tax breaks.

In March, Democrat Christopher Dodd of Connecticut used the same legislation
to win an amendment prohibiting federal contractors from moving
government-funded IT contracts overseas. If ever actually enacted, the
amendment extends indefinitely a congressional moratorium requiring that
government jobs shifted to private contractors have to stay in the United
States.

However, significant exemptions allow federal contractors to continue
offshoring with the 28 European Union and Pacific Rim
nations that are members of the WTO’s government procurement code. Neither
India nor China is a member of the WTO code.

In addition, waivers are included for contracts involving national defense
and homeland security, since some military systems incorporate parts made
overseas. In any event, Republicans insisted on and won language requiring
the Commerce Department to prove the amendment won’t harm the economy or
lead to more job losses before it can be enacted.

That left little to actually ban and no fears of WTO sanctions. By a 70-26
vote, the Senate approved the measure.