Senate Passes Corporate Tax Bill

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Senate Passes Corporate Tax Bill

Bush Plans to Sign $143 Billion in Cuts

 

By Jonathan Weisman

Washington Post Staff Writer

Tuesday, October 12, 2004; Page A01

 

The Senate gave final approval yesterday to the most significant

corporate tax legislation in nearly 20 years, sending President Bush a

650-page measure that reduces taxes for domestic manufacturers,

builders and even Hollywood studios and doles out scores of tax breaks

for interests ranging from tackle box makers to Native Alaskan whaling

captains.

 

The 69 to 17 vote, taken in a rare holiday session, belied the

acrimony underlying the measure, which includes $143 billion in tax

breaks over 10 years, offset by loophole closures and other revenue

raisers. The House passed it Thursday night by a similarly comfortable

margin, 280 to 141, and White House aides say Bush will sign it into

law, despite strong criticism leveled last week by Treasury Secretary

John W. Snow.

 

Public health groups were infuriated that a $10 billion buyout for

tobacco farmers was included without a provision to grant the Food and

Drug Administration authority to regulate cigarettes. Charitable

organizations protested a revenue-raising measure that would greatly

reduce the value of automobiles donated to charities.

 

But threatened filibusters over the tobacco provision and the bill's

failure to include a tax break for employers of National Guard members

and reservists fizzled yesterday. Sen. Mary Landrieu (D-La.) agreed to

a final vote after Senate leaders attached her $2.5 billion

Guard-and-reserve tax break to a different bill. Sen. Mike DeWine

(R-Ohio) dropped his threat over the tobacco provision when he was

promised a separate vote on an FDA regulation bill.

 

The Senate vote cleared the way for Congress to adjourn for the

campaign season. After the tax bill passed, the Senate quickly

approved measures to fund homeland security and military construction

for the fiscal year that began Oct. 1. Congress will return after the

election to pass most of the bills that will fund the government this

fiscal year. If House and Senate negotiators can work out compromise

legislation to reform the nation's intelligence programs, then

lawmakers may be called back briefly to ratify the deal shortly before

the Nov. 2 election.

 

Senate Majority Leader Bill Frist (R-Tenn.) said he expects to know

within two days whether Congress will finish work on the intelligence

bill in time for enactment before the election.

 

Adjournment had been held up for days by legislative brushfires that

erupted over the corporate tax bill. Proponents hailed it as a job

creation measure that would simplify the nation's Byzantine tax laws

for multinational corporations, address long-festering grievances and

clamp down on loopholes, such as one that allows companies to escape

taxation by reincorporating at a post office box in an offshore tax haven.

 

" This bill is basically about manufacturing jobs, " said Senate Finance

Committee Chairman Charles E. Grassley (R-Iowa). " Let the record be

clear, this bill is fair. This bill is balanced. "

 

But critics -- including budget watchdogs and liberal activists --

decried what they saw as a cornucopia of special-interest tax cuts

that would complicate the tax code, favor companies doing business

overseas and ultimately worsen the budget deficit. Sen. John McCain

(R-Ariz.) pronounced it " disgraceful " and " a classic example of the

special interests prevailing over the people's interest. "

 

Ron Field, vice president of public policy for Volunteers of America,

a national volunteer social service program, said: " Congress is

turning its back on the very service organizations it claims to

support through faith-based and community initiatives, while providing

billions of dollars in new tax breaks to wealthy corporations. "

 

The tax legislation culminates a two-year effort to repeal an export

subsidy ruled illegal by the World Trade Organization. That ruling

allowed the European Union to impose sanctions last spring that tack

12 percent onto the cost of a variety of U.S. exports. But wary of

raising taxes on the nation's ailing manufacturers, Congress hoped to

replace that $5 billion-a-year subsidy with tax cuts to ease the pain.

 

The centerpiece tax cut -- worth $76.5 billion over 10 years --

provides tax deductions that would effectively lower the corporate

income tax rate from 35 percent to 32 percent for U.S. " producers, "

defined broadly to include traditional manufacturers, Hollywood

studios, architectural and engineering firms, home builders, and oil

and gas drillers, among others.

 

Also included are $42.6 billion worth of tax cuts for overseas

profits, including a 10-year $3.3 billion temporary tax holiday

allowing companies with vast stores of offshore revenue to bring it

home under a discount tax rate of 5.25 percent.

 

Sen. John Ensign (R-Nev.), one of that provision's champions,

predicted it would result in a $300 billion cash infusion into the

U.S. economy. But in a letter to Grassley last week, Snow protested

that the tax holiday favors foreign operations over domestic

businesses and " would not produce any substantial economic benefits. "

 

Beyond those centerpieces are hundreds of smaller measures that

benefit restaurant owners and Hollywood producers; makers of bows,

arrows and sonar fish finders; NASCAR track owners; and importers of

Chinese ceiling fans. Sen. Herb Kohl (D-Wis.), an owner of the

Milwaukee Bucks basketball team, voted " present " yesterday in

deference to a provision favoring sports franchise owners.

 

Under the bill, foreign gamblers would no longer have to report

dog-track and horse-track winnings for taxation. Farmers would receive

new tax breaks on ethanol and distressed livestock sold during

droughts. Native Alaskan whaling captains could deduct some expenses

as charitable contributions. Small oil and gas drillers, already

buoyed by record fuel prices, would receive new tax breaks for

marginal wells. Railroads would garner a special credit for

maintaining their tracks.

 

General Electric alone could reap tax breaks measured in billions from

two provisions: One, costing $7.9 billion over 10 years, that would

allow companies with large overseas manufacturing and financial

services operations to mingle subsidiary profits for tax purposes, and

another that would reduce taxation by $995 million over 10 years on

income from shipping and the leasing of aircraft.

 

A $5 billion measure to temporarily allow residents of states without

income taxes to deduct their sales taxes from their federal income tax

bill helped win votes in Texas and Florida.

 

" On issue after issue, page after page, [the bill] puts the interest

of the big corporations above the public interests, above the hopes

and dreams and everyday needs of the American middle class, " said Sen.

Edward M. Kennedy (D-Mass.).

 

Grassley accused such critics of grandstanding yesterday, since he

said virtually every senator had approached him for a pet tax break.

 

" Nearly every member raised narrow interest provisions, " he said. " So

if there's some fault, we all share it. We all do it. "

 

Grassley emphasized the bill's loophole closures, the most stringent

measures approved by Congress since the corporate scandals of 2001 and

2002.

 

The legislation also includes a controversial measure, sought by the

Bush administration, that would allow private debt collectors to begin

collecting overdue federal taxes and pocket as much as 25 percent of

the debt. The measure is expected to bring in nearly $1.4 billion over

10 years, while granting collection agencies $339 million over that time.

 

Meanwhile, the Senate also sent to the president a $33 billion measure

to fund the Department of Homeland Security in 2005, and a $10 billion

bill to pay for the construction of military bases and housing.

 

Attached to the annual military construction bill is $11.5 billion to

aid businesses, farms, individuals and government installations

damaged by the recent Florida hurricanes, and $2.9 billion for farmers

and ranchers hurt by droughts and other weather-related problems in

2003 and 2004.

 

The bill also includes authority for government loan guarantees of as

much as $18 billion for a new Trans-Alaska natural gas pipeline.

 

Staff writer Dan Morgan contributed to this report.

 

© 2004 The Washington Post Company