When the Senate returns from its week-long recess on April 19, lawmakers are expected to take up a corporate tax and trade package that has important provisions for architects and engineers.
At the heart of the legislation, on which debate began before the break, is repeal of the Extraterritorial Income (ETI) program, a tax break for design firms, manufacturers and other industries that operate overseas. That program, in essence, gives export subsidies to U.S. firms to offset trade inequities due to differing U.S. and European tax systems. But in 2002, the World Trade Organization ruled that ETI violated international trade law.
WTO said the ETI benefit was permissible for A-E services because they do not involve the export of goods. Still, Congress wants to help U.S. manufacturers in a way that placates the WTO. To do that, the bill would replace ETI with a cut in the corporate tax rate from 35% to 32%. A similar House bill passed last year extends the rate reduction to A-E firms, but the bill pending in the Senate does not. The current Senate plan allows firms to increase tax deductions up to 9%, which is the equivalent of a 3% rate cut, says Steve Hall, the American Council of Engineering Companies government affairs director.
Lobbyists for ACECand the American Institute of Architects are supporting an amendment expected to be offered by Sens. Kay Bailey Hutchison (R-Texas), Mary Landrieu (D-La.) and Gordon Smith (R-Ore.) to extend the tax benefit to A-E firms. "All were asking for is fairness and equity," says ACECs Hall. But the amendment would apply only to projects in the U.S. Opponents to broader coverage argued that firms working overseas would benefit most from the rider, while the legislation aims to stimulate U.S. economic expansion and promote job growth.
Another issue is the scope of the bill. Industry prefers the Senate approach, which applies benefits to most types of businesses, to the House version, which applies only to C corporations. Business groups will push to have the final legislation take the Senate view and apply to S corporations, partnerships and limited liability corporations.
The bill has been moving slowly in the Senate as lawmakers wage partisan fights. Democrats had held up action, seeking to include several labor-related provisions. "This bill has become a magnet for election-year amendments," says Ron Faucheux, AIAs vice president for government advocacy.
Republicans added one amendment that would add a $14-billion package of energy tax breaks that had been part of broader legislation that was stalled. The energy incentives, including some for production and conservation, were attached in exchange for letting Tom Harkin (D-Iowa) offer an amendment to block the Labor Dept. from implementing new rules restricting overtime pay in favor of compensatory time.