The House Ways and Means Committee has approved a bill that would give corporations huge tax benefits while repealing a tax break on exports that was ruled illegal by the World Trade Organization.
The European Union has levied harsh tariffs on U.S. goods as a response to the Extraterritorial Income export-tax regime. The House bill attempts to swap the now-illegal export subsidies with new tax breaks for business. The bill would lower the top tax rate for U.S. manufacturers from the current 35 percent to 34 percent in 2005 and 2006, and to 32 percent in 2007, the Wall Street Journal reported.
The bill is far-reaching and includes tax breaks for companies to repatriate foreign earnings, a $9.6 billion buyout for tobacco farmers, and benefits for certain businesses—ethanol, ranching, timber, horse-racing, fishing, bow-and-arrow industries and more. NASCAR racetracks, distillers, cruise lines and energy companies would also get tax breaks.
"The package is so weighed down with business favors that it resembles a pork-laden spending bill," the Journal reported.
The bill next goes to the full House and then to the Senate, which approved a different version of the legislation in May. The Senate bill provides tax relief for manufacturers in the form of a deduction, while the House version proposes cutting the tax rate.
Tax experts, including U.S. Treasury officials, are dubious about either approach. They predict a targeted manufacturing break will lead to widespread tax sheltering. "These bills would cause a sea change in the way that we tax business income, and it's a change that I don't think is for the better," acting assistant Treasury secretary Gregory Jenner told a June 11 meeting of the American Institute of Certified Public Accountants, according to the trade journal Tax Notes.
Another difference is cost, and that may be the biggest sticking point in developing a compromise bill. The Senate bill’s long-term cost is zero. The House bill would cost about $34 billion over 11 years.
Meanwhile, the Washington Post reported that many senators have significant personal investments in the manufacturing companies that would be big winners if the bill is passed.
According to 2003 financial disclosure statements, some of the wealthiest members of the Senate held stock worth tens of thousands of dollars in the very companies that would benefit the most from the legislation.
Senate aides said the senators’ investments do not influence their votes. Charles Lewis, director of the Center for Public Integrity, told the Post that it was "hard to point a finger and say it is a conflict of interest" but that the investments create the impression that "they're all peas in the same pod with the same interests."