House Ways and Means Committee Chairman Bill Thomas (R-CA) has introduced a bill that would provide at least $120 billion in tax relief for businesses over the next 10 years.

Congress is under pressure from the World Trade Organization to discontinue a U.S. export credit that provides a subsidy to U.S. manufacturers who sell their goods abroad. Finding a means to replace the advantages provided by the export credit is the impetus for the proposed business tax relief legislation.

Representative Thomas's bill, H.R. 2896, would reduce the top brackets of corporate income tax to 32% for businesses with taxable income of less than $10 million, it would provide relief from alternative minimum tax, it would extend the loss carryback period, and it would provide a temporary reduction from income for overseas earnings. The bill would also replace the current nine foreign tax credit categories with two categories, and shorten the depreciation period for equipment from 10 years to seven years.

"This bill focuses in a significant way on domestic manufacturers and their workers," said Rep. Thomas.

Analysts suggest that neither the House nor the Senate will accept the bill as it is proposed, but some of the provisions are likely to become law. Were the export subsidy to remain in effect, it would provide $50 billion in relief over the next 10 years. An article in yesterday's Wall Street Journal suggests that a comparable amount of business tax relief is a reasonable expectation from this legislation. ["Corporate Tax Cuts Proposed in Place of Export Credit," The Wall Street Journal, July 28, 2003]

Earlier this year, the World Trade Organization gave the European Union the go-ahead to impose sanctions should the United States fail to repeal the export credit. The U.S. faces a potential $4 billion in sanctions from the EU if the export credit is not repealed by October 1.