WORLD TRADE: Formula for Investment

How can the U.S. encourage private investment abroad? Last year the State Department commissioned Ralph I. Straus, a director of his family's R. H. Macy & Co. and an economist who served ably with the Economic Cooperation Administration, to study the situation with an eye to formulating a new Government policy. Last week, after distilling answers from questionnaires sent to 955 key U.S. businessmen, Straus issued a report that the State Department heartily endorsed as "a new and fresh look" at the problem.

Some investment-priming suggestions:

¶ Defer taxes on foreign income of U.S. firms until these earnings are distributed in the U.S. as dividends. Thus a company could reinvest more profits abroad, shift profits, taxfree, from one foreign land to another.

¶ Give tax credit to U.S. firms for foreign taxes that are deferred or forgiven "by foreign governments as an incentive to new productive investment." The U.S. Government should also allow companies to deduct losses that they suffer due to changes in foreign-exchange rates, such as the recent devaluation of France's franc.

¶ Expand the U.S. investment insurance program (TIME, July 28) to cover as much as $1 billion in new investments (current ceiling: $500 million) and to cover losses from war, revolution or civil strife.

¶ Offer financial aid to foreign-development banks and other "American financial institutions which are prepared to invest in private enterprises in the less developed countries."

¶ Permit direct but nonvoting Government investment in private enterprises abroad.

The Straus report is bound to run into considerable opposition from the U.S. Treasury, which announced that it will fight any tax-easing rules that might further unbalance the budget. Yet Straus has strong support for his proposals both on Capitol Hill and at the White House. Louisiana Democrat Hale Boggs, author of a House bill to cut corporate taxes on foreign earnings from 52% to 38%, promised a "warm welcome" from Congress for the report. And from Administration officials came word that the White House will endorse much of it.