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21 Suffolk Transnat'l L. Rev. 57 (1997-1998)
Ending Welfare as We Know It (Corporate Welfare, That Is): International Taxation and the Troubled History of Internal Revenue Code Section 936

handle is hein.journals/sujtnlr21 and id is 63 raw text is: ENDING WELFARE As WE KNOW IT (CORPORATE WELFARE, THAT IS): INTERNATIONAL TAXATION AND THE TROUBLED HISTORY OF INTERNAL REVENUE CODE SECTION 936 I. INTRODUCTION In August of 1996, Congress passed and President Clinton signed legislation that modified the United States tax treatment of foreign source income in several important areas.' One amendment significantly modified the posses- sions tax credit contained at section 936 of the Internal Revenue Code of 1986.2 Tax incentives for United States taxpayers operating in territorial possessions of the United I. See Small Business Job Protection Act of 1996, Pub. L. No. 104-188, 110 Stat. 1755 (codified as amended in scattered sections of 26 U.S.C.) § 1501 (repealing subpart F inclusion for earnings on excess passive assets of controlled foreign corporations); § 1601 (making modifications to possessions tax credit); § 1603 (treating certain income earned from some foreign corporations as un- related business taxable income); and §§ 1901-07 (enacting series of foreign trust tax compliance provisions). The amendments were contained in a larger tax measure that was attached to legislation increasing the federal minimum wage. See id. at § 2104(b) (enacting increase in minimum wage to $5.15 per hour beginning September 1, 1997). President Clinton had called on Congress to increase the minimum wage eight months earlier. See President William Clinton, State of the Union Address (Jan. 23, 1996), in 142 CONG. REC. H767,770 (daily ed. Jan. 23, 1996) (calling for increase in minimum wage due to decline in purchasing power). Some members of Congress argued that increasing the minimum wage would be detri- mental to small business, and therefore coupled the legislation with various tax incentives designed to aid smaller firms. See 142 CoNG. REC. H5471 (daily ed. May 22, 1996) (statement of Rep. Richard Neal) (describing tax incentives as sweetener to small business because of the minimum wage increase). 2. See Small Business Job Protection Act of 1996 § 1501 (enacting termi- nation of existing § 936 credit and providing operational rules for temporary successor credit). The foreign tax provisions in the legislation generally helped to pay for the small business incentives contained in the legislation. See H.R. REP. No. 104-737, at 361-68 (1996) (detailing Joint Committee on Taxation revenue esti- mates of tax provisions). In total, the foreign tax provisions raised $12.3 billion; over 80% of that amount, or $10.6 billion, was raised through the modifications to § 936 credit. See id. at 366.

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