WHILE SLASHING SUBSIDIES to poor children, the Republican-controlled House of Representatives is proposing to grant U.S. arms manufacturers a new subsidy worth hundreds of millions of dollars annually.
The Federal Acquisition Reform Act of 1995 would eliminate a tax on foreign arms sales currently required by law to recover taxpayer-funded research and development of weapons. The Clinton administration supports the changes proposed by the GOP.The government spends about $30 billion of public money annually on weapons research and development. Man-u-fac-turers realize a handsome profit when they sell these tax-subsidized weapons abroad.
To recover some of this taxpayer subsidy, the Arms Export Control Act requires that recoupment fees be charged on foreign military sales of major defense equipment.
The fees range from 5 percent to 25 percent of the weapon's sale value. The money recovered is returned to the Treasury as general revenue, thus reducing the deficit. Now, at the behest of arms industry lobbyists, Republicans in Congress and Democrats in the White House want to forgo this money.
Industry has lobbied against all recoupment fees since 1991, arguing that the fees raise the price of U.S. weapons and make them uncompetitive on the international market. U.S. market dominance belies such claims. In 1993, according to the Congressional Research Service, the United States achieved a whopping 73 percent market share of all new sales agreements.
As it currently stands, the recoupment law already allows the Pentagon to waive the fee on foreign military sales if the export would promote standardization of forces with NATO or major non-NATO allies, like Japan. Under this provision, the Defense Department waived $272 million of recoupment fees in 1994. In addition, such fees are not required by law on sales of smaller, non-major systems developed with public funds.
Until June 1992, recoupment fees were also levied on direct commercial sales negotiated by industry and licensed by the State Department. Unlike the requirement on Pentagon-negotiated foreign military sales, this policy was embodied only in regulations, which the George Bush administration was able to repeal without legislation.
Since then, the administration and industry have argued that the fee on foreign military sales should be abolished in order to "level the playing field" with the State Department's direct commercial sales program.
Of course, another way to level the playing field would be to reinstate recoupment costs on commercial sales. In "Reducing the Deficit: Spending and Revenue Options (1995)," the Congressional Budget Office estimates that doing so would reduce the deficit by $110 million in fiscal year 1996 and $920 million over the next five years.
Rather than repeal the recoupment law, Congress should make it tougher. We should have recoupment fees on all sales of military equipment developed with taxpayer funds. And Congress should repeal the waiver for recoupment fees on foreign military sales for NATO and major non-NATO allies.
The citizens of the country did not finance the development of these weapons for manufacturers' export profits.
With all the squawking in Washington about school lunches and other social programs draining the budget, it is disingenuous for congressional leaders and the White House to back a plan that will cost the country hundreds of millions of dollars in potential revenue.