The Export Source Rule helps reduce this double taxation and thereby encourages U.S. companies to manufacture in the U.S. for export. Under the proposal, income from the sale or exchange of inventory property that is produced in the United States and sold or exchanged abroad would be apportioned between production activities and sales activities on actual economic activity. Exporters with only domestic operations never incur foreign taxes and thus, are not even subject to the onerous penalty of double taxation. The Export Source Rule, by alleviating double taxation, encourages companies to produce goods in the U.S. and then to export them. A 1993 Treasury Department study found that if the rule had been replaced by an activity-based rule in 1992, goods manufactured in the U.S. for export would have declined by a substantial amount.
Exports are fundamental to our economic growth and our future standard of living.
The U.S. is a mature market. As such, U.S. employers must export to markets overseas in order to expand the U.S. economy. Contrary to Administration assertions, the U.S. tax treaty network is not a substitute for the Export Source Rule. Moreover, the network is far from complete since it is limited to 56 countries. With or without a tax treaty, the real reason most multinational companies face double taxation is that U.S. tax provisions unfairly restrict corporate ability to credit foreign taxes paid against their U.S. taxes.