The Carter administration is considering recommending to Congress that it end a controversial tax break companies can get if they set up special subsidiaries to market their wares abroad.
These so-called domestic international sales corporations (DISCs) have been a major irritant to some of the nation's major trading partners and have been declared an illegal tax subsidy to trade by the General Agreement on Tariffs and Trade.
According to Dow Jones News Service, Policy Laurence N. Woodworth told a meeting of the Organization for Economic Cooperation and Development that the administration now is weighing the costs and benefits of DISCs.
Proponents of DISCs say that they spur U.S. exports by permitting companies to defer taxes on profits made in the DISC. About half the profit a company can make by selling a product abroad can be retained by the DISC and therefore not taxed.
Not only have DISCs angered the nation's major trading partners, they have also upset many tax reform groups who argue that the DISCs neither encourage exports nor create jobs on balance but are a big cash drain on the Treasury.
The Organization for Economic Co-operation and Development is a quasigovernmental group made up of the major industrialized Western nations.
Woodworth told the meeting of the OECD's fiscal committee that in deciding whether to recommend to Congress it repeal DISCs, the administration is weighing the domestic benefits against "the need to achieve a satisfactory multilateral resolution of international trade issues."
Countries have been negotiating on international trade barriers for four years with little progress.
Woodworth told the meeting he hoped other countries will join the U.S. "in reviewing the international rules affecting direct and indirect export subsidies. The U.S. has come to the realization that more flexible exchange rate have reduced the benefit of programs of this type (DISC)," Dow Jones reported.
Woodworth also said that the administration would consider recommending that Congress amend its countervailing duty statute to declare that rebates of indirect taxes such as producer taxes are not illegal subsidies under U.S. law if the administration loses a court appeal.