Senate Passes Corporate Tax Bill

Sen. Mary Landrieu (D-La.) agreed to a final vote on the corporate tax bill after Senate leaders attached a tax break she sought to a different bill. (Charles Dharapak -- AP)

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 tack 12 percent onto the cost of a variety of U.S. exports. But wary of raising taxes on the nation's ailing manufacturers, 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 revenue to bring it home under a discount tax rate of 5.25 percent.

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. Herb Kohl (D-Wis.), an owner of the Milwaukee Bucks basketball team, voted "present" yesterday in deference to a provision favoring sports franchise owners.

Under the bill, foreign gamblers would no longer have to report dog-track and horse-track winnings for taxation. Farmers would receive 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 receive new tax breaks for marginal wells. Railroads would garner a special credit for maintaining their tracks.

General Electric alone could reap tax breaks measured in billions from two provisions: One, costing $7.9 billion over 10 years, that would allow companies with large overseas manufacturing and financial services operations to mingle subsidiary profits for tax purposes, and another that would reduce taxation by $995 million over 10 years on income from shipping and the leasing of aircraft.

A $5 billion measure to temporarily allow 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 everyday needs of the American middle class," said Sen. Edward M. Kennedy (D-Mass.).

Grassley accused such critics of grandstanding yesterday, 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 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 as much as 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.

Meanwhile, the Senate also sent to the president a $33 billion measure to fund the Department of Homeland Security in 2005, and a $10 billion bill to pay for the construction of military bases and housing.

Attached to the annual military construction bill is $11.5 billion to aid businesses, farms, individuals and government installations damaged by the recent Florida hurricanes, and $2.9 billion for farmers and ranchers hurt by droughts and other weather-related problems in 2003 and 2004.

The bill also includes authority for government loan guarantees of as much as $18 billion for a new Trans-Alaska natural gas pipeline.

Staff writer Dan Morgan contributed to this report.