WTO issue -- ends in Corporate Tax Cuts?

[Timber Loftis]

House Leaders Are Pushing to Cut Corporate Taxes
By EDMUND L. ANDREWS
Published: October 24, 2003

WASHINGTON, Oct. 23 — House Republican leaders are nearing agreement on a bill to give nearly $60 billion in additional tax breaks to corporations, brushing aside Democratic complaints that the measure would deepen the federal budget deficit.

According to a draft circulated among Republican lawyers, the bill, which is expected to come up for a vote next week at the House Ways and Means Committee, would gradually reduce the corporate tax rate for most companies from 35 to 32 percent.

It would also relax or abolish a number of longstanding tax regulations on foreign profits of American multinationals, a move that Congressional tax analysts say could save companies more than $40 billion in taxes over the next decade.

The intended beneficiaries are companies that manufacture products in the United States and small businesses. But the definition of manufacturing includes movies, software, oil and gas refining and engineering services. That means the beneficiaries would also include Time Warner, Disney, Microsoft and giant engineering companies like Bechtel and Fluor.

The proposals are in the latest draft of a bill to replace a tax break for American exporters that the World Trade Organization has declared an illegal trade subsidy. The European Union has threatened to retaliate with up to $4 billion a year in tariffs on American products if the United States fails to repeal the old break.

But the original issue has become a magnet for lobbying from competing business groups, all looking to either protect their existing tax breaks or obtain some new ones.

According to a new report by the Center for Responsive Politics, a group that scrutinizes campaign finance, companies in one or another of the coalitions lobbying over this issue contributed $753,000 to members of the Senate Finance Committee and $700,000 to members of the House Ways and Means Committee in the first half of 2003.

In an attempt to placate as many groups as possible, the House proposal would repeal the original export tax break for what is known as extraterritorial income and replace it with a broader array of corporate tax breaks worth more than twice as much.

Repealing the old tax break would bring the Treasury about $50 billion over 10 years, and the bill would raise nearly $30 billion more by blocking a variety of tax shelters and loopholes. But the new tax breaks would be worth about $142 billion over 10 years, leaving the net cost to the government at about $60 billion over the next decade.

Drafted by Representative Bill Thomas of California, chairman of the House Ways and Means Committee, the new proposal is less generous to companies than one he floated earlier this year that would have cost $128 billion.

The new proposal does not include a provision, for example, that would allow American companies to bring back to this country hundreds of billions of dollars in foreign profits at a small fraction of the normal United States tax rate.

Mr. Thomas also dropped a provision that would have extended through 2007 a tax credit for research and development, which was supposed to expire.

But corporate lobbyists and Congressional officials said they hoped to reinstate many of those provisions in separate legislation or during a House-Senate conference committee on this bill.

"We are continuing to support it," said Karen Magee Myers, director of tax and trade policy at Electronic Data Systems. "You've got to start somewhere. We have time to work some of these issues in the conference committee."

The Senate Finance Committee recently approved a similar bill sponsored by Charles Grassley, Republican of Iowa, and Max Baucus, Democrat of Montana. But the Senate bill is supposed to be "revenue neutral," with the cost of new tax breaks being paid for entirely by the elimination of existing tax breaks and the imposition of new customs fees.

House Democrats have vowed to fight the Republican proposal, charging that it would worsen the federal deficit and provide additional tax incentives for companies to build factories and shift jobs overseas.

"The United States is facing record massive budget deficits," wrote Representative Charles Rangel of New York, the ranking Democrat on the Ways and Means Committee. "Congress needs to take the lead in addressing the budget deficit crisis before it becomes even worse."

Any bill to replace the existing tax break for exporters, he continued, "should not be used as an excuse to pursue unrelated and expensive corporate tax cuts."

Critics of the Bush administration contend that it is a mistake to give corporations more tax relief, because corporate taxes have been declining for years as a share of total tax revenue.

The Center for Budget and Policy Priorities, a liberal policy research group, said preliminary tax data for this year indicated that corporate taxes accounted for just 7.4 percent of total tax receipts, down from about 21 percent of total receipts in the 1960's.

Mr. Rangel has teamed up with Representative Phil Crane, Republican of Illinois, to push for a bill that would be revenue-neutral and replace the old export tax break with a tax reduction for profits on manufacturing within the United States.

But because Mr. Thomas incorporated the tax reductions for manufacturers in his own bill, aides to Mr. Crane said he was encouraged by the new proposal. Mr. Thomas also has support from Tom DeLay, the House majority leader, and he appears to be winning over other Republicans on the tax-writing committee who had favored the Crane-Rangel bill.

The Bush administration is less than enthusiastic about the cost, but Treasury Secretary John W. Snow has said his top priority is to see Congress pass a bill of some sort that solves the international trade dispute.