Special Report How DISC helps FMC Corporation expand U.S. exports, create more U.S. jobs, increase U.S. government revenues FMC Export Related Jobs Federal Income Tax Revenues The Honorable Carl Albert Speaker of the House of Representatives Dear Mr. Speaker: Now that the provision of the tax law known as DISC - We submit that the experience of FMC Corporation, one FMC has benefited significantly from DISC as have our I think it is critical that you and others in the Sincerely, вылождият Robert H. Malott cc: The Honorable Al Ullman WHAT IS DISC? DISC (Domestic International Sales Corporation) refers to a tax provision of the Revenue Act of 1971 that is designed to increase exports and improve the U.S. balance of payments by putting American exporters on a more equal tax footing with foreign competitors. Before DISC, U.S. corporations were taxed currently on their export earnings at the full U.S. corporate tax rate. Under the DISC provision, U.S. companies pay a tax on 75% of earnings generated from export sales and defer the remaining taxes. As a result of DISC, U.S. companies can compete more effectively from the U.S. rather than build plants in foreign locations to produce the same products. FMC EXPORTS TRIPLE AFTER DISC In the three years that DISC provisions have been in effect, the lower tax rate has enabled FMC Corporation to compete more effectively in world markets. Export sales have risen four times faster than domestic sales, increasing from $101 million in 1971, the last year without DISC, to $296 million in 1974. The case histories on the following pages illustrate the contribution of DISC to these increases. The importance of DISC to exports is reflected by an average annual increase in exports of over 40% a year during the three years DISC has been in effect compared with less than 2% annual growth in the three years prior to DISC. FMC EXPORT-RELATED JOBS DOUBLE AFTER DISC In 1971, only 3,584 FMC employees were at work producing products for export. Today, 6,781 employees are engaged in export activities, almost double the number holding such jobs four years ago. The number of employees producing products for domestic sales actually declined during this period. FMC EXPORTS BOOST FEDERAL REVENUES Even though DISC provides for a temporary postponement of the payment of taxes on a portion of export profits, FMC in 1974 paid almost 2.5 times as much in Federal taxes on income from export sales as it paid in 1971. Tax revenue from the increased export volume made possible by DISC more than offset the lower DISC tax rate paid by the company. In addition, DISC provisions created a multiplier effect. Jobs created by export sales gains also meant that additional income taxes would be paid by these 3,197 additional employees. Personal spending by these additional employees as well as jobs and business activity created by FMC purchases from its suppliers added further strength to the economy. We estimate that the combined Federal tax receipts resulting from FMC's export activity approximated $85 million in 1974 compared to $32 million in 1971. DISC - THE KEY FACTOR IN EXPORTS, JOBS, REVENUES The successful promotion of exports is obviously no easy task. Success is dependent upon a combination of factors, not the least of which are aggressive management and effective people. DISC, however, remains one of the most effective tools managers have to successfully compete with competitors in countries which provide far more support to their own export business. Several of these, in fact, do not tax the profits on exports at all. Case histories what FMC divisions say about DISC AUTOMOTIVE SERVICE EQUIPMENT DIVISION Conway, Ark.; Los Angeles, Calif. "Our entire operation has been taught to 'think export,' because our Corporate Group and Divisional management have adopted a much more aggressive attitude toward export sales during the DISC years. Our sales increases reflect the results. "We have adopted an 'export' mode as opposed to manufacturing or licensing overseas. We have hired additional salesmen, and retained salesmen and dealers in overseas countries, in the face of temptations to turn over selected countries to foreign licensees. There have been at least a dozen cases during the past three years where we have turned down opportunities to license in favor of maintaining an aggressive export program." OUTDOOR POWER EQUIPMENT DIVISION Port Washington, Wisc.; Aiken, S.C. "In the early 1970's, we began experiencing a quickening of interest in our product in export markets. We began to seriously consider either a joint venture in Europe or the possibility of establishing our own manufacturing operation there. "Instead, as a result of DISC, we decided to export the products by reducing our sales price to European customers and pass some of the tax benefits on to the end customer. The strategy has worked well. Our volume has increased and employment in the United States directly related to export manufacturing has substantially increased also." CRANE AND EXCAVATOR DIVISION Cedar Rapids, la.; Lexington, Bowling Green, KY. "It is always difficult to isolate a specific decision that was made solely on the existence of DISC. However, there is no question that it has been a major factor in the considerations related to building two new plants at Lexington and Bowling Green, Kentucky, where both plants will export about 30% of their production." CHAIN DIVISION Indianapolis, Ind.; Atlanta, Ga. "In our planning process, the Chain Division International Business Department considered the strategy of manufacturing our products overseas. As we reviewed the growing international markets in Brazil, South Africa, Australia, Canada, Europe, and Latin America, we found that the DISC incentives allowed us to participate in these markets by exporting from Indianapolis." ENVIRONMENTAL EQUIPMENT DIVISION Itasca, III. "We recently negotiated one of our largest export sales in history for a sewage treatment plant ($500,000). Because of DISC benefits we priced it below what our normal gross margin would have been. We very likely would not have gotten the job without the DISC benefit." POWER TRANSMISSION DIVISIONS Indianapolis, Ind.; Philadelphia, Pa.; Milwaukee, Wisc. "Some of the costs of doing business overseas are also higher than domestic and not the least of these is the additional capital tie-up in receivables. I, therefore, do not take the Puritan view that the only legitimate use of DISC that is justifiable could be in lowering our pricing. It is also a stimulus to exports by helping to recover higher export costs and to place export business on as attractive a basis as is the domestic market." FILM AND PACKAGING DIVISION Marcus Hook, Philadelphia, Pa.; Fredericksburg, Va. "Almost 30% of U.S. industry sales of cellophane in 1974 were in the export market. If the U.S. cellophane industry is to continue as a major employer in the flexible packaging industry, export sales must continue to grow. "Prior to the establishment of DISC, the return on international sales did not provide an incentive to increase export volume. FMC, in 1971, was operating one plant at full capacity and another at half capacity. The DISC Tax Provision justified increased marketing efforts internationally and by late 1972, both FMC cellophane plants were operating at full capacity and full employment. Total U.S. exports of cellophane have grown from approximately 50 million pounds in 1971 to over 103 million pounds in 1974." AIRLINE EQUIPMENT DIVISION San Jose, Calif. "The Airline Equipment Division's exports have increased 500% in the last four years. We have changed our market boundaries from North America and Western Europe to the entire world. Nearly half of our 1975 volume will be exported to 80 countries on six continents. "There is no question that the DISC tax provisions have complemented our international. marketing efforts. Approximately 50% of our major competitors are non-U.S. companies, some with governmental export incentive programs. The DISC tax provisions assist us in being price competitive without sacrificing profit after tax." FOOD MACHINERY INTERNATIONAL DIVISION San Jose, Calif. "During the years DISC has been in effect, we dropped manufacture of pea harvesters in Australia because we could export more profitably. "Sourcing of rotary sterilizers for evaporated milk and other products for Southeast Asia has traditionally been from Australia. Owing to overall cost comparisons during this period, we have been quoting for U.S. supply. "DISC helps FMI compete with foreign-sourced machinery and projects. Many of our foreign competitors have an advantage over us in terms of freight, duty preference, export financing and export rebates. DISC helps to counteract this." PUMP DIVISION Englewood, N.J.; Indianapolis, Ind.; Montebello, Calif. "I believe DEB-22, our program to design and produce a new special model turbo pump for use by shipbuilders overseas, is an outstanding example of DISC influence upon our business and our resulting impact upon the U.S. economy. I do not believe we would have made the decision to proceed with the product, aimed as it is exclusively at export sales, without the cash flow benefits of DISC. We estimate that this product line will directly sustain between 50 and 100 U.S. direct labor jobs in the northern New Jersey – northeastern Pennsylvania area during 1975.” AGRICULTURAL CHEMICAL DIVISION Middleport, N.Y.; Baltimore, Md.; Modesto, Calif. "The DISC benefit was a determining factor in deciding to carry out a $75 million expansion of two chemical plants in the United States rather than to build new facilities abroad. Nearly 50% of the additional chemical capacity will be for export." |