Bush 2003 tax cuts give foreign corporations advantage over U.S. companies

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http://www.nytimes.com/2007/03/24/business/24tax.html?ref=business
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A 2003 tax cut that President Bush promoted as a way to create jobs in the United States includes a provision that has given some foreign companies a financial advantage over their American competitors by making it cheaper for them to raise capital.

The heart of the issue is in the treatment of the payments to investors as either interest, like bond payments, or as dividends, from stocks, which qualify for a lower tax rate under the 2003 law. Foreign companies can sell securities known as hybrids, which are bonds with interest payments that are treated as dividends and taxed at the lower rate. The option is unavailable to American companies.

The advantage under the 2003 law can be significant. It can cost an American company as much as $540 million more than a foreign company to pay $1 billion to United States investors.

The administration has generally kept silent about this advantage, which was widely known in tax circles. Last June, the Internal Revenue Service quietly told Congress that it planned to study the issue but no date has been set for completing that review. To qualify for the advantage, foreign companies sell bonds with no maturity date, known as perpetual debt, and arrange to trade them on American stock exchanges.
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