Vanderbilt Journal of Transnational Law


Garrison R. Cox

First Page



This Note examines the logical and empirical validity of the reasons for the passage of the DISC legislation. Basically, the DISC legislation was prompted by the negative trade balance in 1971, a novel phenomenon in post-World War II United States. Providing a tax break on producers' export income was viewed as a way of reducing trade deficits by stimulating exports. On its surface, using "tax expenditures" to reach this goal seems logical, or at least benign. But when one considers that the primary thrust of the legislation was to encourage small producers to enter the export market, the logic of using a statutory plan that is convoluted at best and baroque at worst is seriously flawed. After reviewing the legislative history of DISCs, this Note examines the basic mechanics of setting up and operating them. Next, selected aspects of the inner workings of these special corporations will be examined in detail, with particular attention paid to strategies for maximizing DISC benefits. In the final section, policy considerations will be considered in light of a conclusion: Despite the well-intentioned goals of DISC legislation, the DISC concept has been developed in an overly detailed statute, the complex wording of which threatens to obscure the whole purpose of DISCs. That the DISC provisions' marginal impact on reducing trade deficits is so small compared to the compliance maze they create argues strongly for either their immediate repeal or their drastic simplification. While the rules are in effect, however, tax managers of companies with significant income from exports are foolish not to gain tax advantages with DISCs.