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SENATE PASSES ETI REPEAL; LOTS OF OTHER STUFF INCLUDED

May 13, 2004

The Senate this week finally passed a bill to repeal the "Extraterritorial Income Exclusion," or ETI -- the tax provision that has caused the World Trade Organization to impose punitive sanctions on U.S. exports. The House of Representatives has yet to act on the ETI repeal, but the Senate action may nudge the House along.

Of course, simply repealing a tax break is not the Senate way. As few tax bills pass, Congressfolk like to load their favored tax provisions on those that do look like they will make it to the Presidents desk. This may be the only tax bill to go through this election year, so there's a lot of stuff.

The main provision of the bill is a deduction for domestic production activities. This provision would permit domestic manufacturers and farmers to exclude up to 9% of their production income. This deduction would be available to C corporations, "pass-throughs" (partnerships and S corporations), and individuals. The deduction would be phased in over a period of years, starting this year.

The bill has many other provisions, including restrictions on car donation deductions, changes to partnership rules, tax shelter restrictions, and others that we haven't figured out yet. We will highlight selected items as we figure them out.

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