Union Tribune

November 6, 2003

Repeal of export tax break could cost S.D. jobs

By DANA WILKIE
COPLEY NEWS SERVICE

WASHINGTON In the world of international trade, the San Diego region may owe as many as 48,000 jobs to a decades-old tax break that encourages companies to export.

But those jobs will be in jeopardy this winter should Congress fail to cushion the financial blow from repealing this tax break, which the European Union has called illegal.

The World Trade Organization is threatening $4 billion in sanctions against U.S. exports if Congress does not abolish the tax break, which European countries believe gives the United States an unfair advantage in the global marketplace. But some experts wonder if Congress will be able to resolve the issue before March, the month by which the WTO demands action.

As Thanksgiving approaches the time by which lawmakers expect to head home for their winter break political differences threaten to derail plans to soften the $5-billion-a-year hit on companies caused by repealing the tax incentives.

Moreover, conservatives who are defiant about the WTO threats among them Rep. Duncan Hunter, R-El Cajon are suggesting tax writers and the Bush administration refuse to tailor the repeal to demands being made by the European Union. Some may even try to block a House vote on the repeal, which could unleash the threatened sanctions.

"For a sector that's lost 2.5 million jobs over the past few years, that could be disastrous," said Chris Bertell, a lobbyist for the Coalition for U.S.-Based Employment, a group of exporting companies.

The coalition opposes a plan in Congress intended to help soften the blow from the repeal that exporting companies fear will send U.S. jobs overseas.

Last week, the House Ways and Means Committee passed a plan by Rep. Bill Thomas, R-Bakersfield, to lower the corporate tax rate from 35 percent to 32 percent to compensate for repealing the tax incentives. The bill also gives several tax breaks to corporations with overseas operations. Thomas' plan pays for that partly with the $50 billion that would be raised by repealing the export tax break.

Opposition to the plan abounds: Democrats say domestic manufacturers should reap the majority of the $50 billion, not multinational corporations. Conservatives and the Bush administration complain that it would add almost $60 billion over 10 years to the federal deficit. Some lawmakers seeking re-election fear that voters may interpret support for the Thomas bill as support for sending American jobs overseas. And some Republicans and Democrats fear it may be politically dangerous to support any corporate tax break at a time when Americans are losing jobs.

"Among many Democrats and Republicans, the issue is viewed suspiciously in light of our (national) deficit," said Patrick McCartan, director of legislative affairs for the Aerospace Industries Association, which supports the Thomas bill. "Corporate tax breaks may not be entering the most friendly political and budgetary environment at this time."

The European Union yesterday approved a plan to launch gradual sanctions against U.S. goods if Congress does not end by March the tax break for U.S. exporters. The European Union is considering tariffs on U.S. products that would start at 5 percent in March, then rise one percentage point a month until they reach 16 percent.

U.S. Trade Representative Robert Zoellick has called the sanctions a trade version of a nuclear bomb.

California exports about $50 billion worth of goods each year that benefit from the export tax break, directly or indirectly resulting in 429,000 jobs, according to a PriceWaterhouseCoopers study for the National Foreign Trade Council. Congressional experts say many of those jobs would be in jeopardy should Congress repeal the tax break without softening the financial blow.

San Diego exports about $5.4 billion worth of goods each year that benefit from the tax break, directly or indirectly resulting in nearly 48,000 jobs. Conservatives who are defiant about the WTO's threat and who have questioned the need for moving quickly on the tax-break repeal may try to prevent a vote on the Thomas bill when it comes before the full House in coming weeks.

"There will be Republicans who . . . don't want to feel bullied by the European Union," Bertell said.

"Let them retaliate," Hunter recently told Congressional Quarterly. Hunter told Copley News Service that he opposes sending jobs abroad and that he preferred another plan one with little hope of moving through Congress that he said would have better protected domestic manufacturers.

His spokesman, Mike Harrison, said it is "premature" to discuss whether Hunter would be part of an effort to block a repeal of the tax incentives on the House floor.