Canton Repository

Saturday, October 25, 2003

Tax relief sought for exporters

By PAUL M. KRAWZAK
Copley Washington correspondent

WASHINGTON — As a top exporting state, Ohio stands to suffer if the European Union slaps $4 billion in retaliatory tariffs on U.S. products, as it has threatened to do if Congress fails to repeal an “illegal” tax break for manufacturers.

But if that tax break is eliminated and not replaced with other tax relief, it would imperil 1 million jobs across the nation that are tied to exports, including 45,000 in Ohio, a report from PriceWaterhouseCoopers warns.

The existing tax exclusion supports U.S. exports. The World Trade Organization ruled it an illegal subsidy for business.

As Congress has struggled to come up with a replacement, American corporations that export or operate overseas such as Timken Co. have lined up behind competing tax relief packages facing action in the House.

Timken, based in Canton, and dozens of other multinationals with substantial overseas investments have endorsed legislation authored by House Ways and Means Committee Chairman Bill Thomas, R-Calif.

Domestic manufacturers that depend on exports, including Caterpillar, Boeing and Microsoft, are supporting an alternative bipartisan measure sponsored by Reps. Philip Crane, R-Ill., and Charles Rangel, D-N.Y.

Legislation to replace the tax break also is moving through the Senate.

While the original Thomas bill favored multinationals, the Crane-Rangel bill would direct tax relief to domestic manufacturers.

Several area congressmen, including Reps. Bob Ney, R-St. Clairsville, Sherrod Brown, D-Lorain and Tim Ryan, D-Warren, are among more than 140 cosponsors of Crane-Rangel.

In the past week, however, Thomas has substantially revised his legislation in an effort to win broader congressional support.

According to a summary provided by his office, the latest version provides $142 billion in tax relief. The office said more than two-thirds would go to domestic manufacturers and less than one-third would benefit multinationals.

With elimination of the export tax exclusion and other tax increases, the actual 10-year cost of the bill — the amount it would add to the federal deficit — is $60 billion over 10 years, the summary said.

The Crane-Rangel legislation provides $50 billion in tax relief and would not add to the deficit.

Timken, a leading bearing producer, supports the Thomas bill partly because it provides more comprehensive tax relief and has a better chance of passage than Crane-Rangel, said Robert J. Lapp, vice president of government affairs.

“A bigger issue for us is that the Thomas bill will help and benefit some of our largest customers,” such as General Motors, Ford Motor Co. and Caterpillar, he added.

Another multinational in the area, Diebold Inc. in North Canton, is watching the evolution of the legislation but has not taken a position on the competing bills.

“The export incentive has become less and less important over time” for Diebold, said Scott Hunter, corporate tax director at the leading manufacturer of automatic teller machines. “As Diebold has grown up if you will and become more of a multinational corporation, there are more products that are being designed and developed in their own local markets” abroad, he said.

Crane has yet to embrace the Thomas legislation, but congressional sources predicted that Thomas’ revisions would win over most Republicans.

Ney said he’s open to the Thomas bill despite his support for Crane-Rangel.

“I’m looking for something that will help stimulate and provide some type of relief to manufacturers,” he said. “I prefer domestic manufacturers.”

Democrats promise a fight. They criticize the Thomas bill for increasing the federal budget deficit, since its tax relief is not fully offset by tax increases. The legislation also provides incentives for U.S. companies to move overseas, they charge.

“This bill rewards ... moving offshore,” said Brown, a cosponsor of Crane-Rangel. “This just accelerates the hemorrhaging of jobs.”

Thomas has scheduled a vote on his bill Tuesday. Dan Maffei, a spokesman for the Democrats, said Rangel may offer a substitute adding breaks for small business and farm cooperatives to tax relief for domestic manufacturers.

A provision in Thomas’ bill to cut the corporate tax rate to 32 percent from 35 percent is drawing interest in Gov. Bob Taft’s office, said Jim Samuels, the governor’s executive assistant for business and industry.

“At this point we’re watching it very closely,” he said. “We may be getting to the point of supporting it.”

While pushing for tax relief, the National Association of Manufacturers has avoided throwing its support to either Thomas or Crane-Rangel.

“What we’ve asked for is a balance — to recognize that what’s needed for competitiveness for U.S. manufacturers is a focus on domestic production and on foreign direct investment,” said Kimberly J. Pinter, director of corporate finance and tax for the association.