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Pascrell Introduces Border Tax Equity Act of 2011to Stengthen American Manufacturing and Job Growth

Press Release

Location: Washington, DC

Continuing in his commitment to support American manufacturing and labor, U.S. Rep. Bill Pascrell, Jr. (D-NJ-8) today introduced the bipartisan Border Tax Equity Act to help address and unfair disadvantage for U.S. exports that has existed for more than 40 years.

"This legislation is another tool in the shed to help encourage job growth in America," said Pascrell, a member of the House Ways and Means Committee and Budget Committee. "For too long, American manufacturers have been subject to unfair overseas competition because of the WTO's slanted rulebook that results in an over $518 billion disadvantage to Americans in the global marketplace. It's long past time we used our leverage to negotiate new rules to make trade more equitable for American businesses and workers. Americans can outcompete any other country in the world, but only if the rules of the road are fair and balanced. This legislation will ensure that they are."

The United States generates revenue through direct taxes such as income taxes. Other nations use indirect taxes such as sales taxes or a value added tax (VAT). A VAT is a consumption tax that is assessed on the value added to goods and services at each phase of production. In nations that use the VAT, imports are taxed at that same VAT rate as domestic goods.

The World Trade Organization (WTO) allows member nations with indirect taxes to rebate the VAT when its goods are exported. However, nations with direct tax systems, like the United States, cannot provide rebates on taxes for exported goods.

This puts U.S. exports at a tremendous disadvantage. Other nations' goods get the benefit of lowered tariffs when they are exported because their home governments provide the rebates the WTO allows. Meanwhile, those same governments impose a high VAT on the U.S. goods their countries import.

Altogether, imports into the U.S. face average tariffs of 1.3% and no VAT penalty, whereas U.S. exports face average tariffs worldwide of about 40% plus VAT border adjustment penalty of 15.7%. In addition, foreign companies get a VAT rebate when they export to the U.S. averaging 15.7%!

The Border Tax Equity Act of 2011 solves this inequity by:

1. Instructing the United States Trade Representative (USTR) to negotiate at the WTO an agreement that eliminates the VAT inequity.
2. If this is not done by a date certain, the legislation requires the U.S. to retaliate by implementing an offsetting duty from countries that employ indirect taxes and grant rebates of them upon export if an agreement cannot be reached at the WTO by a certain date.
3. Making U.S. exporters eligible to receive payments to neutralize discriminatory effect of border taxes.

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