A tax credit for American businesses that export their goods that costs taxpayers $4 billion per year in lost revenue could soon be history thanks to a ruling last week by the World Trade Organization (WTO).

The WTO's interim report on the Foreign Sales Corporation (FSC) tax credit, which allows companies to exempt revenue from taxation by using offshore subsidiaries to export their products, characterized the FSC law as an unfair export subsidy and recommended that it be scrapped. Otherwise, the trade organization could allow the European Union to levy steep duties and tariffs on American imports.

American taxpayers pay through the nose for this subsidy. Cost estimates show that FSC's will cost taxpayers $42 billion in lost revenue in the next decade.

More than six thousand companies qualified for the tax credit, but less than one percent of U.S. companies have an FSC. Some of the largest U.S. companies, including Boeing, General Electric (GE) and Microsoft, receive the lion's share of the law's benefits.

Boeing reported $13.3 billion in revenue for the first quarter of this year, a 34 percent increase over last year's first quarter. GE's revenues rose to a record $30.5 billion in the first quarter. Microsoft's most recent revenue figures show a 14 percent increase from the same time last year, up to $6.46 billion.
With around ten percent of its total earnings coming from the tax credit, Boeing is one of the biggest beneficiaries of the law.

Critics charge that the tax break is inherently unfair to companies that do not export their goods. While all companies have to pay a certain percentage of their revenue in taxes, smaller businesses that cannot set up a FSC are disadvantaged in the market by the tax credit.

The WTO's interim report is its second ruling on the law that goes against the United States. In response to last year's ruling against the FSC tax credit, Congress revised the law.

The WTO found the changes were insufficient, as evidenced by last week's report. The trade organization's full report will not be released until August. The U.S. is expected to appeal the WTO's final decision, but the trade organization's panel decisions are rarely overturned.

That could hurt American businesses because products from exporting companies would become more expensive for consumers in the European Union due to higher duties and tariffs.

Congress should immediately scrap the FSC tax credit before the WTO does it for them. This export subsidy costs American taxpayers billions in lost revenue and is inherently unfair to many American businesses.