by Roger Russell
Washington — By a comfortable 251-178 margin, the House has passed H.R. 4520, the American Jobs Creation Act of 2004 — a measure that would repeal an export tax incentive regime that the World Trade Organization has ruled to be illegal.
Differences between the House measure and the Senate version of the bill — which is titled Jumpstart Our Business Strength and passed on May 11 — must now be reconciled before a joint version can be brought to the House and Senate for final approval.
“The Joint Committee will have to deal with some difficult issues,” said Selva Ozelli, an international tax attorney and CPA with RIA, a Thomson business. “The repeal provisions and international provisions in both bills are similar. However, it’s going to be a tough conference because of the different add-ons to the two bills.”
The outcome of the conference negotiations has significance for most tax professionals, according to Ozelli. “Because of the extent of the add-ons, it has implications for tax practitioners across the board, not just international tax practitioners,” she said.
The legislation would satisfy the European Union and the WTO simply by its repeal of the current export provisions, noted Ann Arbor, Mich.-based international tax attorney Martin B. Tittle. “Nothing is necessary to replace ETI,” he said. “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.”
“My hat is off to the chairman for getting his bill through the House,” said Tittle. “But it got through at a price. My favorite of the special interests in the Thomas bill [Ways & Means Committee chair Bill Thomas, R-Calif., spearheaded H.R. 4520] is suspension of the 4.7 percent duty on imported ceiling fans. Clearly, ceiling fan importers have the attention of their representatives.”
“This is a real ‘porker,’” agreed George Jones, managing editor of CCH’s Washington office. “Compared to anything that’s come out over the past five years, the prevailing view is that this bill wins out.”
There is some doubt as to whether the Senate and House can agree on a final bill before the Senate’s targeted adjournment on Oct. 1, 2004, according to Tittle.
“It will be hard to get a final bill on the president’s desk by adjournment because of the limited time Congress has to act and the many hard issues they will have to resolve,” he said. “They expect amendments from Democrat members, and given the amount of recess and holiday time off, that leaves them with about three weeks in July and three weeks in August to work out a deal.”
Working out the differences
Among the provisions that are sure to be hotly debated in conference is the tobacco buyout in the House bill, which would eliminate subsidies for growers in exchange for a one-time buyout. “If that goes through, some senators want FDA regulation of the tobacco industry, which won’t sit well with the southern Democrats in the House who helped pass the bill,” said Tittle.
“There’s also the question of whether the closure of certain corporate tax loopholes should be retroactive,” he added. “There’s a lot of opposition in the House to that, but it was part of the JOBS bill’s goal of revenue neutrality.”
“The two bills structure corporate tax cuts differently,” Tittle continued. “The Senate bill gives a deduction, while the House bill offers a rate cut. Some critics say a straight rate cut will devalue a company’s deferred tax assets. Others question whether tax rate cuts for manufacturers alone are a good idea, given the incentive it will give to every business to shoehorn itself into the definition of a manufacturer.”
“A rate cut only for manufacturing firms puts a lot of weight on the definition,” agreed George Pieler, a research fellow for the Lewisville, Tex.-based Institute for Policy Innovation. “The critics say that the rate cuts should be across the board, not just for manufacturers. The proponents argue that the 2001 and 2003 rate cuts have already given some relief to smaller businesses and non-manufacturers. The problem is that when you make categories, anyone who isn’t in a favored category will object. They’re trying to duplicate what was taken away by the WTO ruling.”
Another possible stumbling block, according to Tittle, is the $19 billion in energy tax breaks in the Senate version. “This will be an attractive target to the House conferees looking to cut into the $34 billion deficit in the Thomas bill,” he said.
The European Union, which has placed WTO-sanctioned tariffs on over 1,600 U.S.-manufactured products, has signaled that it would be agreeable to any form of legislation that repeals the existing FSC/ETI regime. The punitive tariffs, already at 9 percent on July 1, are slated to rise 1 percent a month until they reach 17 percent.
However, the incentive for Congress to pass a bill before the October recess is “more about wanting to get out and campaign for election than pressure from the WTO,” according to Pieler.
“Passing a bill by October can be done, and they should be able to do it,” he said. “If they wait till after the election, they would probably deal with it as part of a larger tax package, but it would be hard to explain to interested parties why they couldn’t get it done.”
Jones agreed. “There are enough provisions in the House bill that are different from the Senate provisions to cause an impasse if they want an impasse, and there are enough similar provisions to create an agreement if they really want one,” he observed.
