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Add-ons burden tax-cut bill

Congress's task seemed simple enough: Repeal an illegal $5 billion-a-year export subsidy and replace it with some modest tax breaks to ease the pain on U.S. exporters.  But the measure has been weighed down with a slew of special-interest add-ons.
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Congress's task seemed simple enough: Repeal an illegal $5 billion-a-year export subsidy and replace it with some modest tax breaks to ease the pain on U.S. exporters.

But out of that imperative has emerged one of the most complex, special-interest-riddled corporate tax bills in years, lawmakers, Senate aides and tax lobbyists say. The 930-page epic is packed with $170 billion in tax cuts aimed at cruise-ship operators, foreign dog-race gamblers, NASCAR track owners, bow-and-arrow makers and Oldsmobile dealers, to name a few. There is even a $94 million break for a single hotel in Sioux City, Iowa.

Even one of the tax lobbyists involved in drafting it conceded the bill "has risen to a new level of sleaze."

"I said a few months ago, any lobbyist worth his salt has something in this bill," said the lobbyist, who would only speak candidly on condition of anonymity. "Now you see what I'm talking about."

Senate tax aides say not even the tax bill's main architect, Senate Finance Committee Chairman Charles E. Grassley (R-Iowa), supports all of the provisions that have been slipped in to win passage. But, they say, the legislation still achieves its original goals. By repealing the export subsidy, it would force the European Union to lift retaliatory tariffs on a variety of U.S.-made goods. It would effectively lower the tax rate paid by ailing domestic manufacturers, and it would somewhat simplify the Byzantine tax system on overseas earnings of U.S companies.

Between the special-interest provisions are also some of most ambitious curbs on corporate tax abuses to emerge since Enron Corp. imploded two and a half years ago. The bill would ramp up penalties on corporate tax scofflaws, untie the Internal Revenue Service's hands to pursue more tax shelters, come down hard on affluent individuals who renounce their citizenship for tax purposes, and virtually eliminate the tax benefit for companies that transfer their "headquarters" to a post-office box in a Caribbean tax haven.

Those curbs, along with the export repeal itself, should fully offset the costs of the burgeoning tax breaks, the authors say.

"This bill is important and well-designed," Grassley said in a statement. "It responds to our legal obligations in the world trade community, provides tax relief to promote job creation by U.S. manufacturers, and includes the kind of corporate reforms the public is demanding."

Added 'sweeteners'
But since the bill emerged from the Finance Committee last fall, it has grown exponentially. Out of the 264 provisions now in the legislation, 146 were added as "sweeteners" after it was voted out of committee, said Keith Ashdown, vice president of policy at the budget watchdog group Taxpayers for Common Sense. And senators still have more than 70 amendments pending when they take it back up, possibly this week.

"This is one of the biggest exercises in congressional vote buying we have ever seen," Ashdown said.

And not everyone is so sure the tax cuts will really be paid for. Robert Greenstein, executive director of the Center on Budget and Policy Priorities, noted that more than two dozen of the tax cuts abruptly disappear in a few years, but their offsetting provisions extend over 10 years. If those tax cuts are extended, as they routinely are, the cost of the legislation would quickly balloon.

"Claims to deficit neutrality need to be taken with grain of salt," Greenstein said.

Senators from both parties have joined the frenzy, and the corporate interests have not been shy. "Even some of the main detractors of the bill, both Republican and Democrat, have special items included that increase the overall cost of the bill," Grassley grumbled.

Daschle's provision
Horse- and dog-track owners secured a provision eliminating withholding taxes for foreign gamblers, at a 10-year cost to the Treasury of $25 million. Sens. Bob Graham (D-Fla.) and Lisa Murkowski (R-Alaska) would delay Treasury Department regulations that would expand the amount of foreign earnings that cruise-ship operators must immediately pay tax on.

Senate Minority Leader Thomas A. Daschle (D-S.D.), with Grassley's help, inserted a $94 million "historic rehabilitation credit for certain low-income housing for the elderly." That "certain" housing is very particular: the 74-year-old Warrior Hotel in Sioux City that an investment group hopes to convert to assisted-living quarters for the elderly on both sides of the South Dakota-Iowa border.

Bow-and-arrow makers secured an $8 million tax break for arrow components and "youth bows" not powerful enough for hunting. NASCAR track owners have been locked in a battle with the IRS over how quickly they could write off the cost of their grandstand facilities on their taxes. Sen. Jon Kyl (R-Ariz.), a car-racing buff, has decided to settle it at seven years, a provision that should save track owners $92 million.

Kansas' two Republican senators, Sam Brownback and Pat Roberts, won a $519 million tax break for small-aircraft makers like Cessna and Learjet, many of them based in Kansas.

With the help of Sen. Jeff Bingaman (D-N.M.), certain car dealers won $189 million in "transitional assistance" as they search for new lines of work. That assistance would go to dealers of one make of car alone, Oldsmobile, which General Motors is phasing out of production. The provision does not name Oldsmobile, but, tax aides say, the meaning is clear: It applies only to dealers of "a motor vehicle manufacturer who announced in December 2000 that it would phase-out the motor vehicle brand."

Timber companies were granted a provision they have been seeking for 15 years, an expanded tax credit worth $90 million for reforestation activities. Timber giant Weyerhaeuser Co., with the help of Sens. Patty Murray (D-Wash.) and Gordon Smith (R-Ore.) won new bond rules worth $252 million that will allow a conservation group to purchase company forest land east of Seattle.

'A good trick'
Insurance industry lobbyists may have pulled the most dramatic coup, one tax lobbyist said. To put off corporate income taxation, insurers for years have accumulated large cash surpluses in policyholders' accounts, which would be taxed when distributed to the policyholders. Clinton administration officials tried, but failed, in the 1990s to begin taxing those surpluses. Now insurance lobbyists have won a $482 million provision allowing them to distribute the surpluses totally tax-free.

"That was a good trick," the lobbyist said.

All of this horse-trading may be taking a toll on the bill's ultimate fate. Measured against the size of the economy, corporate tax receipts have fallen to levels not experienced since the Depression. That may make it difficult for some to swallow all these sweet deals.

"At a time when we're facing these serious mid-term and long-term deficit problems, the notion that all of the revenue saved by closing these loopholes should be plowed back entirely into new tax cuts, especially special-interest tax cuts, there's a problem with that whole framework," Greenstein, of the budget and policy center, said.

A Senate Republican leadership aide, speaking on condition of anonymity, acknowledged that such concerns have been expressed by members of both parties. Plans to bring up the legislation this week may have to be put off as Senate leaders work to scale it back, he said.

Some senators are beginning to speak out.

"The overall size of the tax package is still too large," Sen. John E. Sununu (R-N.H.) said earlier this month.

A senior Senate Republican tax aide said the bill is a victim of extraordinary circumstances. Each month that the export subsidies go unrepealed, the European Union's retaliatory sanctions will rise by a percentage point; in May, they reach 7 percent. That rising pressure has made the underlying repeal bill one of the few pieces of "must-do" legislation this year.

Moreover, business lobbyists have watched anxiously for three years as President Bush pushed through $1.7 trillion in successive tax cuts without significant business provisions. Each year, they have been promised their time would come. And since the corporate scandals of 2001 and 2002 erupted, the Senate Finance Committee has drafted a steady diet of legislation aimed at business excess, creating grievances among business supporters that lawmakers now want to address.

Add election-year gridlock to the mix, and one can understand how the vote-buying has gotten a little out of control, two GOP Senate aides said.

"It's the legislative process at its best in an election year," said the leadership aide.