The House Ways and Means Committee approved a bill Tuesday that would create a new tax break for banks and other financial companies operating overseas.
The measure is a compromise with the Clinton administration to avoid a showdown over the President's first use of the line-item veto. President Clinton deleted a similar provision from the balanced budget package in August.
The deal would allow financial firms to defer taxes on foreign income until the profits were returned to the parent company in the United States. President Clinton had complained that the original measure would have let these companies shift income to tax havens such as the Cayman Islands and avoid all tax.
Under the compromise, a foreign subsidiary of a financial company may defer taxes only on income earned in the country where it is based. For example, a U.S. bank's Germany-based subsidiary could defer taxes only on income it earns in Germany.
Congressional staffers said the tax break, which will be in effect for one year begining Jan. 1, 1998, is expected to save financial companies $57 million. Industry lobbyists said they will press Congress to make the tax break permanent next year.
Hal A. Doersum, a lobbyist for Household International, said the plan will help U.S. firms grow overseas."You want to be able to reinvest earnings on a pretax basis," he said. "If you can't, capital is more expensive."
Most countries allow domestic firms to defer taxes on foreign income, he said. "Deutsche Bank or Sumitomo Bank get that treatment when they come over here," Mr. Doersum said.
U.S. manufacturers also receive a similar tax break. Financial companies were allowed to defer taxes in this manner until 1986 when Congress reversed the break out of concern it was being abused.
Mr. Doersum predicted abuse would not be a problem. "We're not looking for a loophole," he said.
House Way and Means Committee Chairman Bill Archer, who had criticized the President's veto, said he was glad a deal could be reached.
"I am very pleased that we have arrived at a mutually acceptable agreement that preserves the overall intent of Congress," he said in a written statement.
Separately, the House was expected to pass late Tuesday legislation abolishing the Thrift Depositor Protection Oversight Board, the agency created to oversee the now-complete cleanup of the S&L crisis.