Senate Blocks Anti-Offshoring Measures

Democrats fail to limit foreign dividend tax breaks backed by Intel and Microsoft.

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.

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