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.