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JUST WHEN THE PARTY IS GETTING GOOD...

June 12, 2004

...some guy always wants to take away the keg. Greg Jenner, tax policy chief for the Treasury Department, is saying that some of the features in the "must pass" extraterritorial income exclusion (ETI) repeal bill might make for less than ideal tax policy:

“These bills would cause a sea change in the way that we tax business income, and it’s a change that I don’t think is for the better,” Jenner told an AICPA gathering.

Tax Analysts reports:

   Although he said he understands Congress’s 
   desire to help the manufacturing industry, 
   Jenner cautioned that differentiating between 
   types of income could give tax administrators 
   real headaches. Because the bills offer tax cuts
   for manufacturing income, Jenner argued, 
   they give businesses incentives to do all they 
   can to characterize income as manufacturing 
   and deductions as nonmanufacturing. 

For example, maybe accounting firms would say they have two divisions: one that "manufactures" pretty bound copies of audit reports and tax returns; and a related "service" business (with all the deductions) that supports the "manufacturing" profit center. Works for us. This clearly wouldn't work under either ETI repeal bill, but there will be a lot of calls that would be more difficult.

Whether the administration will actually attempt to change these bills seems doubtful at this stage of the legislative process, but Mr. Jenner's comments won't make it any easier for Senator Grassley and House Ways and Means Chairman Thomas to agree on a final ETI bill.

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