The domestic international sales corporation, the Billion-dollar tax break for American businesses selling products abroad, appears likely to be killed in the broad tax revision package President Carter plans to send to the Congress in the fall.
While the final decision has not yet been made - and there are significant pockets of support for the so-called DISCs among business lobbyists and at the Commerce Department - it would take a "miracle" for the President to continue administration backing fo DISCs, one adminisstration source said.
Treasury Secretary W. Michael Blumenthal was strongly critical of the DISC program in testimony last week, telling the Senate Budget Committee that it is hard to justify a $1.5 billion revenue loss to the Treasury when it cannot be shown that the tax break encourages exports.
DISCs also have caused the nation's major trading partners much unhappiness, and the General Agreement on Tariffs and Trade, which sets the international trading rules, concluded several months ago that DISCs - as well as arrangements in France, Belgium and the Netherlands - are illegal tax subsidies under international law.
Domestic international sales corporations were set up in 1971 by Congress and the Nixon administration to encourage U.S. corporations to sell goods abroad. It was a time when the nation's international economic position was at a low ebb and the nation was experiencing severe balance of payments and balance of trade difficulties.
A DISC normally buys goods from the parent corporation and then sells those goods to foreign buyers. Through complicated formulas, the parent company and the DISC subsidiary split the profits from the sale, and the DISC is allowed to defer income taxes on its profit.
The Nixon and Ford administrations were strong supporters of DISCs, arguing that they encouraged exports and jobs. Former Treasury Secretary William E. Simon claimed that 230,000 American jobs were created because of exports encouraged by DISCs.
But in its latest analysis of DISCs, the Treasury has abandoned that claim and says that it cannot be discerned whether DISCs have contributed much, if anything to exports. Supporters and opponents agree that it is nearly impossible to determine whether the increase in exports is due to DISCs or to other factors.
In its required, yearly report on DISCs, the Treasury said last April that most of the increase in exports since 1970 has been due to factors other than DISCs, such as generally rising prices, an expansion in world trade and a decline in the price of the dollar, which contributes to the nation's trade competitiveness.
When DISC legislation was enacted in 1971, the benefits were available to all exports, but were modified in 1976 to be applicable only to increases in exports over a four-year base period.
While the Treasury Department for the most part firmly opposes continuing DISCs and favors recommending that Congress eliminate them, the Commerce Department feels otherwise. Frank A. Weil, assistant secretary of Commerce for domestic and international business, said that 85 per cent of the nation's exports go through DISCs and that the tax breaks DISCs provide just about make up for the higher cost companies incur selling abroad, mainly the longer time it takes to get paid.
He said that the 1976 revisions in the DISC legislation make for a much better law. While he agrees with the Treasury that it is nearly impossible to measure the effect of DISCs, it is "bound to be something," he says.
Weil and other officials say that removing DISCs during a period in which the nation already is running a $23 billion to $25 billion trade deficit could be unwise.
Officials in the Office of the Special Trade Representative, while not neccessarily opposed to eliminating DISCs - especially since the program has been judged to be an illegal international trade practice - do not want to do so without getting something for it at the bargaining table. The world's major trading partners have been negotiating in Geneva for four years on establishing a new regime of lower tariffs and lessened non-tariff barriers to trade - such as subsidies, quotas, standards and the like.
But, as one official noted, President Carter already has singled out DISCs as a likely candidate for tax reform in the campaign. Should the U.S. trade balance in non-oil products worsen significantly - when oil is removed from the nation's trade figures, the $25 billion deficit becomes an $8 billion surplus - elimination of DISCs will become more difficult politically.
But to an administration concerned about budget deficits and to a Congress that is also sensitive on spending and taxing issues, a tax provision that will cost the Treasury $1.25 billion this year and $1.76 billion by 1982 is a prime candidate for the ax.