House Panel Puts More Businesses Under Definition of Manufacturing
Prodded by business lobbyists, House Ways and Means Committee Republicans have drafted a tax cut aimed at aiding ailing U.S. manufacturers. And in doing so, the bill's definition of manufacturing has expanded steadily to include agriculture, food processing, construction, mining, software, movie making, recording, oil refining, and even architectural and engineering services.
A draft version of the 245-page bill, which would cut corporate taxes by $142 billion over the next decade, was circulated to committee aides Thursday. Committee Republicans hope to approve the legislation tomorrow, with a House vote possible early next month. The total cost of the bill to the Treasury would be less than $60 billion, since the cost of the tax cuts would be offset by the repeal of existing export subsidies as well as various measures to close tax loopholes.
The centerpiece of the legislation would lower the corporate income tax rate for manufacturers to 32 percent from 35 percent, but by 2012, the bill would place virtually every U.S. company in the new 32 percent bracket. It also offers a slew of new benefits for companies doing business overseas.
The inclusion of architectural and engineering firms under the manufacturing definition may prove politically problematic, since it ensures that Halliburton Co., the oil services conglomerate formerly headed by Vice President Cheney, would benefit from the bill's new manufacturers' tax rate. Other beneficiaries include Bechtel Corp. and Fluor Corp., which joined a lobbying push spearheaded by former Internal Revenue Service commissioner Donald C. Alexander.
"That doesn't seem like U.S. production to me," said Rep. Charles B. Rangel (N.Y.), the Ways and Means Committee's ranking Democrat. "That sounds like a hidden special-interest tax break."
Other provisions include a $652 million tax break for a handful of U.S. shipping companies, a $161 million break for oil pipeline owners such as Exxon Mobil Corp., and an $8.2 billion break for multinational corporations, secured in large part by the lobbying efforts of General Electric Co.
The bill is just the latest version stemming from a long struggle to replace existing export subsidies that have been ruled illegal by the World Trade Organization. The European Union has given Congress until the end of the year to show "significant progress" repealing the subsidy or risk $4 billion in retaliatory trade sanctions.
But lawmakers are loath to simply repeal the $5 billion-a-year subsidies, which they say would be tantamount to raising taxes on exporters already foundering in a difficult economy. Instead, the Senate and House have been trying to draft tax cuts that would more than offset the loss of the export subsidies.
"This comes down to an argument between jobs and the deficit," Ways and Means spokeswoman Christin Tinsworth said. "There's no job creation unless we actually cut taxes."
The resulting struggle has proved to be a bounty for corporate tax lobbyists. The Senate Finance Committee has already passed its version of a corporate tax bill. That bill reflected pressure from the movie industry to be included in the manufacturing tax break, a senior Senate tax aide said. It also included special breaks for the soft-wood lumber industry, oil refiners and natural gas processors.
But senators rebuffed Alexander's entreaties to include architectural and engineering services in the Finance Committee's definition of a manufacturer, the aide said. They also turned away efforts by U.S. shipping companies that wanted to make taxation on their overseas profits deferrable until those profits are brought back to the United States. Some lobbyists who failed in the Senate have found the House to be more fertile ground. Architectural firms won a last-minute inclusion in the House bill, arguing that they qualify for the export subsidies so they should be included in the relief.
"We're not asking for a new benefit, just the same benefit in a different form," said Jerry Holloway, a spokesman for Fluor Corp.
Democratic tax aides say the bill represents a major expansion of that benefit. The current export subsidy applies only to architectural and engineering work done for overseas projects -- including Halliburton's and Bechtel's lucrative reconstruction projects in Iraq. The House language would extend the 32 percent tax rate, however, to all architectural and engineering work, domestic and overseas.
"Halliburton should be high-fiving right now," a senior House Democratic tax aide said.
According to House and Senate tax aides, Exxon Mobil took up the standard for bankrupt Enron Corp. on a long-sought provision that would make deferrable the taxation of income derived from oil and gas pipeline transportation.
Powerful tax lobbyist Kenneth J. Kies, formerly staff director of Congress's Joint Committee on Taxation, successfully pushed the shipping tax break for Overseas Shipholding Group Inc., one of the world's largest bulk shipping firms. "No other country taxes shipping income earned outside its borders," Kies said. The tax "is one of the big reasons why U.S. [shipping] companies are being bought up by foreign purchasers."
Kies also represented General Electric and GE Capital in a push to simplify the way companies calculate the credits they receive for taxes paid overseas. Those credits are used to offset U.S. taxation to ensure the same earnings are not taxed abroad and in the United States.
The byzantine rules governing overseas taxation may be the strongest argument Ways and Means Chairman Bill Thomas (R) has to do something about the U.S. corporate tax code, tax experts say.
Moreover, the United States, which used to have relatively low corporate tax rates, is now among the highest tax countries in the industrial world, in large part because other nations have been cutting their corporate tax rates while Congress has focuses its tax-cutting largesse on individuals, said Gary Hufbauer, a former Treasury official now with the Institute for International Economics.
But over the past three years, corporate tax revenues have plunged 36 percent and now represent just 7.4 percent of the federal government's total tax take, the lowest level since 1983. That coupled with a record federal budget deficit, has led Democrats -- and some Republicans -- to object to any corporate tax cut.
In this climate, many business lobbyists and congressional tax aides say, the Ways and Means legislation may have difficulty passing the House and has little chance of becoming law in the near future.
"As a betting man, I would not guess that this will get done this year," said a Republican tax lobbyist close to House GOP leaders. "But stranger things have happened."
Prodded by business lobbyists, House Ways and Means Committee Republicans have drafted a tax cut aimed at aiding ailing U.S. manufacturers. And in doing so, the bill's definition of manufacturing has expanded steadily to include agriculture, food processing, construction, mining, software, movie making, recording, oil refining, and even architectural and engineering services.
A draft version of the 245-page bill, which would cut corporate taxes by $142 billion over the next decade, was circulated to committee aides Thursday. Committee Republicans hope to approve the legislation tomorrow, with a House vote possible early next month. The total cost of the bill to the Treasury would be less than $60 billion, since the cost of the tax cuts would be offset by the repeal of existing export subsidies as well as various measures to close tax loopholes.
The centerpiece of the legislation would lower the corporate income tax rate for manufacturers to 32 percent from 35 percent, but by 2012, the bill would place virtually every U.S. company in the new 32 percent bracket. It also offers a slew of new benefits for companies doing business overseas.
The inclusion of architectural and engineering firms under the manufacturing definition may prove politically problematic, since it ensures that Halliburton Co., the oil services conglomerate formerly headed by Vice President Cheney, would benefit from the bill's new manufacturers' tax rate. Other beneficiaries include Bechtel Corp. and Fluor Corp., which joined a lobbying push spearheaded by former Internal Revenue Service commissioner Donald C. Alexander.
"That doesn't seem like U.S. production to me," said Rep. Charles B. Rangel (N.Y.), the Ways and Means Committee's ranking Democrat. "That sounds like a hidden special-interest tax break."
Other provisions include a $652 million tax break for a handful of U.S. shipping companies, a $161 million break for oil pipeline owners such as Exxon Mobil Corp., and an $8.2 billion break for multinational corporations, secured in large part by the lobbying efforts of General Electric Co.
The bill is just the latest version stemming from a long struggle to replace existing export subsidies that have been ruled illegal by the World Trade Organization. The European Union has given Congress until the end of the year to show "significant progress" repealing the subsidy or risk $4 billion in retaliatory trade sanctions.
But lawmakers are loath to simply repeal the $5 billion-a-year subsidies, which they say would be tantamount to raising taxes on exporters already foundering in a difficult economy. Instead, the Senate and House have been trying to draft tax cuts that would more than offset the loss of the export subsidies.
"This comes down to an argument between jobs and the deficit," Ways and Means spokeswoman Christin Tinsworth said. "There's no job creation unless we actually cut taxes."
The resulting struggle has proved to be a bounty for corporate tax lobbyists. The Senate Finance Committee has already passed its version of a corporate tax bill. That bill reflected pressure from the movie industry to be included in the manufacturing tax break, a senior Senate tax aide said. It also included special breaks for the soft-wood lumber industry, oil refiners and natural gas processors.
But senators rebuffed Alexander's entreaties to include architectural and engineering services in the Finance Committee's definition of a manufacturer, the aide said. They also turned away efforts by U.S. shipping companies that wanted to make taxation on their overseas profits deferrable until those profits are brought back to the United States. Some lobbyists who failed in the Senate have found the House to be more fertile ground. Architectural firms won a last-minute inclusion in the House bill, arguing that they qualify for the export subsidies so they should be included in the relief.
"We're not asking for a new benefit, just the same benefit in a different form," said Jerry Holloway, a spokesman for Fluor Corp.
Democratic tax aides say the bill represents a major expansion of that benefit. The current export subsidy applies only to architectural and engineering work done for overseas projects -- including Halliburton's and Bechtel's lucrative reconstruction projects in Iraq. The House language would extend the 32 percent tax rate, however, to all architectural and engineering work, domestic and overseas.
"Halliburton should be high-fiving right now," a senior House Democratic tax aide said.
According to House and Senate tax aides, Exxon Mobil took up the standard for bankrupt Enron Corp. on a long-sought provision that would make deferrable the taxation of income derived from oil and gas pipeline transportation.
Powerful tax lobbyist Kenneth J. Kies, formerly staff director of Congress's Joint Committee on Taxation, successfully pushed the shipping tax break for Overseas Shipholding Group Inc., one of the world's largest bulk shipping firms. "No other country taxes shipping income earned outside its borders," Kies said. The tax "is one of the big reasons why U.S. [shipping] companies are being bought up by foreign purchasers."
Kies also represented General Electric and GE Capital in a push to simplify the way companies calculate the credits they receive for taxes paid overseas. Those credits are used to offset U.S. taxation to ensure the same earnings are not taxed abroad and in the United States.
The byzantine rules governing overseas taxation may be the strongest argument Ways and Means Chairman Bill Thomas (R) has to do something about the U.S. corporate tax code, tax experts say.
Moreover, the United States, which used to have relatively low corporate tax rates, is now among the highest tax countries in the industrial world, in large part because other nations have been cutting their corporate tax rates while Congress has focuses its tax-cutting largesse on individuals, said Gary Hufbauer, a former Treasury official now with the Institute for International Economics.
But over the past three years, corporate tax revenues have plunged 36 percent and now represent just 7.4 percent of the federal government's total tax take, the lowest level since 1983. That coupled with a record federal budget deficit, has led Democrats -- and some Republicans -- to object to any corporate tax cut.
In this climate, many business lobbyists and congressional tax aides say, the Ways and Means legislation may have difficulty passing the House and has little chance of becoming law in the near future.
"As a betting man, I would not guess that this will get done this year," said a Republican tax lobbyist close to House GOP leaders. "But stranger things have happened."
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