Measure laden with special interest clauses

by Roger Russell

Hoping to head off monthly increases in sanctions against U.S. manufacturers, the Senate passed the Jumpstart Our Business Strength bill on a 92-5 vote. The passage came at a cost, howeverl, with numerous add-ons making the final shape of the legislation murky.

Beginning March 1, 2004, European Union member countries began imposing tariffs of 5 percent on 1,600 U.S. manufacturing products. The tariffs, now at 8 percent, are set to increase by 1 percent a month up to 17 percent, or until Congress acts to eliminate what the EU calls illegal export subsidies.

While the Senate bill repeals the provisions that the World Trade Organization ruled illegal and that led to the sanctions, the add-ons have nothing to do with removing the subsidies.

“Just about any special interest you can think of that didn’t get something into the Senate bill should fire their lobbyist,” said Ann Arbor, Mich.-based international tax attorney Martin B. Tittle. “Everybody has something in there — it’s a panoply of special interests. It’s amazing that they could actually offset all those provisions, since they always promoted the bill as revenue neutral.”

George Jones, managing editor of CCH’s Washington office, agreed. “It’s an interesting bill in that it’s really increased in size beyond the repeal of the FSC-ETI regime. Whether it will make final passage more or less likely remains to be seen.”

In order to keep the special interest add-ons and remain revenue neutral, the bill also contains numerous loophole closers, according to George Pieler, a research fellow with the Lewisville, Texas-based Institute for Policy Innovation. “The revenue loss is three times the static revenue loss of the current law provisions,” he said. “It contains a lot of very narrowly targeted credits and exemptions. That’s why there are so many loophole closers to ostensibly pay for the bill.”

The problem is that so many legislators have pet projects to add to the bill, according to Selva Ozelli, an international tax expert with RIA, a Thomson business.

“The whole negotiating process has been complicated in both the Senate and the House because there are other tax rules that individuals want to pass. They know that replacement of the ETI regime is going to pass, so they’re taking the opportunity to add on their own provisions,” she said.

The legislation would satisfy the EU and WTO simply by repealing the current export provisions, noted Tittle. “Nothing is necessary to replace ETI — just repeal it and the government has $4 billion extra to spend. What complicates matters is that everyone wants a piece of the money that will be saved. All the add-ons amounted to a lot more than $4 billion, which is why they need the offsets.”

Meanwhile, it’s uncertain when final legislation will come out of the Conference Committee to be voted on by both houses. House Ways and Means chairman William Thomas is looking at common ground between the JOBS act and the House bill, H.R. 2896, that was marked up last October.

The House and Senate bills take different tracks regarding domestic versus multinational companies, Tittle noted. “The Senate bill is focused on domestic manufacturers, while the Thomas (H.R. 2896) bill has a number of provisions that benefit multinationals but don’t do anything for the domestic manufacturers,” he said. “That’s why Rep. [Charles] Rangel [D-N.Y.] put out his own bill, because any money that goes to multinationals is not going to domestic corporations.”

The JOBS bill replaces the export incentive structure with a system that reduces the tax rate for U.S. manufacturers by 3 percentage points. The cuts are for all companies that manufacture in America, regardless of size. The House version gives a tax reduction to all businesses, not just manufacturers.

“Judging how the definition of ‘manufacturer’ has been made so broad in the Senate bill as to include, for example, the services of architectural firms, the House leaders will probably win the day and eventually get a general corporate tax reduction — if not for all businesses, then for small businesses,” said CCH’s Jones.

“Cutting the overall corporate rate by 3 percent is one possibility, because that would be neutral across borders and would eliminate any complaints about trade subsidies,” said the IPI’s Pieler. “Most people think that the EU will take whatever we give them this time.”

“If it weren’t for the WTO sanctions, nothing would be moving because it’s a presidential election year,” said Jones. “The complaint among Hill watchers here is that there has been no more polarized Congress than the present one. Everything is about politics and people feel there is very little will to get together on issues, so even with the increasing tariff sanctions it will likely be passed very close to the summer recess in August, if then.”

Tittle agreed. “I would be thrilled if Chairman Thomas could pull something together and pass it by the end of summer,” he said. “Once that happens, the conference committee will meet and put things together, but we’re dealing with an election year, so that could prolong it. The two parties are so polarized, they’re not inclined to act in what the other side considers good faith.”

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