Word: exported
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...company sets up what is called a foreign sales corporation. Companies can form FSCs in 32 countries designated by Congress--among them Jamaica and Barbados--or in a U.S. possession like the Virgin Islands. The company then funnels its exports (or, more accurately, the paperwork for its exports) through its offshore FSC. Presto: no federal income taxes on a portion of those export profits...
Just about every large U.S. corporation has an FSC; Intel, Eastman Kodak, General Motors, Caterpillar, Union Carbide, Chrysler, R.J. Reynolds and Georgia-Pacific are just a few. And why not? A corporation with an FSC can shelter 15% or more of its export profits from federal income...
Like so many corporate-welfare programs, this one isn't available to all companies. It goes only to those that export. The truth is, most large corporations that use the FSC break are already robust exporters and don't need much encouragement to ship abroad. They would export with or without the tax break. In this decade alone, this single corporate-welfare program has cost U.S. taxpayers more than $10 billion, with about $8 billion of that flowing to the largest corporations...
Programs such as foreign sales corporations are a product of Congress's attempts to legislate economic behavior--attempts that generally fail, to the detriment of the Treasury. In 1971 legislators became alarmed at the growing trade deficit--imports that exceeded exports--and the threat to American jobs. So Congress came up with a program, the Domestic International Sales Corporation, that deferred corporate taxes on export income. The idea was to encourage companies to keep jobs here...
When other countries complained that the program was an export subsidy--which it was--in violation of international trade agreements, Congress ditched it and set up FSCs. Our trading partners were happy; our corporations were happier, because the lawmakers forgave all the deferred taxes corporations had run up under the old program--a figure that then amounted to $13 billion...