The Senate gave final approval today to the most significant corporate tax legislation in nearly 20 years, sending President Bush a sprawling, 650-page measure that closes egregious tax loopholes, reduces taxes for domestic producers and doles out scores of tax breaks for interests ranging from tackle box makers to Native Alaskan whaling captains.
The Senate vote of 69 to 17, taken in a rare holiday session, belied the acrimony underlying the measure, which includes almost $140 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 Bush is expected to sign it into law.
The vote cleared the way for Congress to adjourn for the campaign season. After the tax bill passed, the Senate quickly approved spending 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 spending bills that will fund the government this fiscal year, while they grapple with legislation to overhaul the nation's intelligence programs.
Loopholes closed
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, liberal activists and Treasury Secretary John W. Snow — 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."
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.
"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," said Ron Field, vice president of public policy for the Volunteers of America, a national social service program.
Filibusters die
But threatened filibusters over the tobacco provision and the bill's failure to include a tax break for employers of National Guardsman and reservists fizzled today. 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 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 currently tack 12 percent onto the cost of a variety of U.S. exports. But wary of raising taxes on the nation's ailing manufacturing sector, 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 revenues to bring them home under a discount tax rate of 5.25 percent.
Economic benefits disputed
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. Herbert H. Kohl (D-Wis.), an owner of the Milwaukee Bucks basketball team voted "present" today in deference to a provision favoring sports franchise owners.
Under the bill, foreign gamblers would no longer have to report the dog-track and horse-track winnings for taxation. Farmers would get 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 get new tax breaks for marginal wells. Railroads would garner a special credit for maintaining their tracks.
"In the next few months, the railroad industry is going to create thousands of new jobs," predicted Sen. Trent Lott (R-Miss.).
General Electric Co. could reap tax breaks measured in billions from two provisions: One, costing $7.9 billion over 10 year, that would allow companies with large, overseas manufacturing and financial services operations to mingle subsidiary profits for tax purposes, and another reducing taxation by $995 million over 10 years on income from shipping and the leasing of aircraft.
Tobacco buyout
The tobacco farmer buyout was added to win tobacco-state votes in the House. A $5 billion measure temporarily allowing 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 every day needs of the American middle class," said Sen. Edward M. Kennedy (D-Mass.).
Grassley accused such critics of grandstanding today, 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 bill would raise $1.3 billion by cracking down on companies and individuals who try to change their headquarters or official residences to tax havens like the U.S. Virgin Islands. It would impose stricter rules on the reporting of questionable tax shelters to the Internal Revenue Service.
It also would slam shut a loophole that allows foreign government entities, such as the Parisian subway system, to sell themselves to U.S. corporations, which then write off the purchase from their taxes. That alone would save nearly $27 billion over 10 years. The bill would severely limit the deduction companies take for the use of corporate jets for entertainment purposes.
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 up to 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.
Sen. Don Nickles (R-Okla.) predicted today that future congresses, driven by concerns over tax complexity, would have to revisit the tax bill. But such concerns were ultimately subservient to the need to lift the European Union's sanctions and the desire to secure long-sought provisions for their constituents.