WASHINGTON -- This is the season of humidity, the sweet odor of honeysuckle and talk of tax cuts. Everyone in Congress and its corridors talks about who gets what breaks -- but not much is said about who might be stuck paying the bill.
This is a tale about the other side of tax cuts: the loophole losers. In this tight-fisted era of balanced budgets and zero-sum games, there are interests whose luck has run out.
One of them is Maryland's chief chicken farmer, Frank Perdue. He is about to lose a tax break that he won as a consolation prize in his last major tangle with Congress a decade ago -- a confrontation still vividly recalled by participants as the "Chicken Wars."
"I'm not sure he really realizes it's gone yet," says Rep. Wayne T. Gilchrest, an Eastern Shore Republican, whom Perdue and his son, Jim, have called upon in their lobbying effort. "But his tax consultant does."
At stake for Perdue is about $60 million in untaxed income for which the bill is suddenly about to come due. Even for the second-largest poultry producer in the nation -- with $2 billion a year in sales -- that ain't chicken feed.
Except that it actually is.
Since 1919, family farmers -- and ranchers, fruit growers and others whose family business is food -- have been given special treatment by the Internal Revenue Service for dealing with production costs, such as feed for livestock.
Known in the tax trade as cash accounting, this accommodation lets farmers deduct the cost of the feed when they buy it, rather than waiting until the animals that eat it are sold. Most other businesses can't deduct costs until they sell their product.
Such flexibility keeps farmers afloat during lean periods by effectively granting them a tax-free loan for a portion of the feed.
As many family businesses grew into multimillion-dollar enterprises, however, Congress began to take a skeptical look at whether they needed that help.
Particularly skeptical in 1987 was then-Sen. Jim Exon, a Democrat from Nebraska, home of Con-Agra, a giant poultry producer that competed with Perdue and Tyson, the Arkansas-based chicken operation.
Tyson, like Perdue, is a privately held corporation that was considered a family farm for tax purposes and permitted to use cash accounting. Con-Agra was not.
"Yes, it takes a tough man to make tender chickens," Exon told his colleagues in mocking Perdue's slogan. "But all it takes is a few tough senators who are not chickens to bring these winged tax giveaways home to roost."
The senators turned out to be semi-tough. Family farm businesses that collected more than $25 million a year in gross receipts were required to give up cash accounting and switch their books to a less tax-friendly method that other businesses use.
"They were shooting at the chickens and they hit us, too," says Clark Willingham, president-elect of the National Cattlemen's Beef Association, which represents cattle ranchers caught in the cross-fire.
To soften the tax bite, the senators didn't require Perdue and other businesses to pay back taxes on the income they had deferred over the years. Instead, the money was put in "suspense accounts," where it would come due only if the family business was changed or sold.
"When Congress decides to change the tax law, it is unfair to tell taxpayers that it is being changed retroactively," Sen. William V. Roth Jr., a Delaware Republican who helped create the "suspense account" gambit, said at the time.
Even so, Democratic Sen. John Glenn, an Ohio Democrat, called the suspense accounts "an outrageous loophole."
There was no actual money in these accounts; they were just figures on paper. But with Congress more and more in need of revenue to balance the budget and provide tax cuts, the accounts began to look more attractive.
By 1995, when the newly elected Republican Congress was putting together its balanced budget plan, lawmakers decided it was time to collect the back taxes on the suspense accounts.
The Perdue company, whose officials declined to comment for this article, and others got a reprieve when President Clinton vetoed the GOP budget plan because of its cuts in health and social programs.
But Clinton thought closing the suspense account loophole was a good idea. He included it this year in his own budget proposal, requiring the back taxes to be paid over a 10-year period. He estimated this would raise $446 million over the first five years.
As the tax-writing committees of Congress began preparing their bills this year, friends of the suspense account knew their cause was all but lost. To save their loophole, they would have to raise the same amount of revenue some other way. That means taking someone else's loophole.
"This is the problem of balancing the budget," says Willingham. "What made deficit spending so wonderful is that you don't have to worry about that."
Tyson, the Arkansas firm, took a low profile on the issue -- preferring to give the lead to "Uncle Frank," as one Tyson official put it.
