Huge tax cut gains key OK

House-Senate panel votes $145 billion in breaks

Most benefit corporations

633-page bill includes $10 billion tobacco buyout

October 07, 2004|By NEW YORK TIMES NEWS SERVICE

WASHINGTON - In an act of pre-election largesse, House and Senate negotiators approved a sprawling corporate tax bill yesterday that would shower corporations and farmers in politically sensitive states with about $145 billion in new tax cuts.

In an attempt to get backing from Southern Democrats, Republican leaders included a $10 billion buyout for tobacco farmers to be paid for by taxpayers, but they rejected a Senate provision to link that buyout with a requirement that cigarette companies be subject to regulation by the Food and Drug Administration.

Without the FDA link, the bill could be in jeopardy on the Senate floor, where opponents have threatened to stretch the debate to run down the clock as Congress tries to adjourn tomorrow.

But Republican leaders said they had more than enough votes to stop a filibuster, contending that the overall tax bill has provisions sought by so many different lawmakers that it was almost assured of final passage by the end of this week. President Bush is expected to sign the bill if it reaches his desk.

The agreement involves the cozy deal making that often characterizes pork-barrel politics with lawmakers from both parties insisting on breaks for hometown industries in return for their support of the overall measure.

The big winners include General Electric, Exxon Mobil, electric utilities, movie producers and agricultural producers.

Keith Ashdown, vice president for policy at Taxpayers for Common Sense, a public advocacy group in Washington, said: "This legislation is an early Christmas gift for corporate fat cats."

The bill was initially intended to compensate exporters for the loss of $50 billion in tax breaks that the World Trade Organization had declared illegal, but congressional negotiators approved a 633-page behemoth that doled out tax breaks worth nearly three times as much as the original subsidy.

Supporters said the bill would resolve a trade dispute that has led the European Union to impose tariffs on up to $4 billion in American exports, while promoting job creation at American manufacturing companies.

"It also gives a real shot in the arm to U.S. factories and farmers, at home and abroad," said Sen. Charles E. Grassley, the Iowa Republican who is chairman of the Senate Finance Committee. "We need to give permanent relief to the nation's job creators and lift the sanctions burden from our exports."

Not all lawmakers were happy. "This is a disgrace," said Sen. John McCain, the Arizona Republican who had backed the proposal to make tobacco products subject to FDA regulation. "They have removed the linchpin in the passage of this legislation in a complete sellout to the tobacco companies."

Displaying candy-flavored cigarettes like Kool's Mocha Taboo and Camel's Twista Lime, a bipartisan group of senators - led by Democratic Sen. Edward M. Kennedy of Massachusetts - threatened to drag out debate on the bill as long as possible to prevent the Senate from voting before Congress is supposed to adjourn this weekend.

However, Sen. Tom Daschle of South Dakota, the Senate Democratic leader, conceded that he would vote to stop a filibuster because the bill had too many good provisions. For Daschle, who is in a difficult re-election battle, the bill's most appealing provisions are a series of tax breaks for ethanol that are badly sought by farmers in his home state.

The bill also includes $20 billion in tax cuts on the foreign earnings of multinational corporations. Companies that have accumulated billions of dollars in untaxed overseas profits, from computer companies such as Hewlett-Packard to pharmaceutical producers such as Eli Lilly, would be given a one-year holiday to bring those profits back to the United States at a small fraction of normal tax rates.

Railroad companies such as the CSX Corp., which was headed by John W. Snow before he became Treasury secretary, would get a 50 percent tax credit for the cost of maintaining their tracks. The cost would be $501 million over 10 years.

The overall measure is technically cost-free, because it would also raise money by tightening rules against tax shelters and imposing new customs duties. But Ashdown and other critics contend that the full costs have been glossed over and disguised by delaying the starting date of some provisions and scheduling others to end after several years. Once Congress passes a tax break, it is typically renewed.

The centerpiece of the bill would abolish a tax break for American exporters, from Boeing Co. and Caterpillar Inc. to Microsoft, that the WTO declared an illegal export subsidy.

The European Union has begun imposing retaliatory tariffs on about $4 billion in American exports, from agricultural products to jewelry and leather goods. The tariff rates, which have been climbing monthly since March, are now 12 percent.

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