Opposition Softens on Corporate Tax Bill

And she questioned the whole notion of carving up the tax code to benefit certain activities, such as domestic manufacturing.

"I would prefer to have a set of tax rules that are conducive to international operations and not rules that penalize certain companies," she said. "I think our biggest concern with the proposals that would just penalize certain companies is that we believe that people would quickly find a way around them."

Opposition remains strong among former administration officials. Olson, now a lawyer with Skadden, Arps, Slate, Meagher & Flom, said she still believes the bills will distort investment decisions, reduce national income and create "a lot of difficulties," as businesses try to shift expenses from their manufacturing operations to their service operations, redefine service activities as manufacturing, and restructure to qualify for the lower tax rate.

R. Glenn Hubbard, former chairman of Bush's Council of Economic Advisers, said the bills fly in the face of conservative beliefs that the free market, not government, should guide business growth and investment.

"Let's start from principle," he said. "It's industrial policy."

But recently, the administration has fallen silent. White House officials refused to discuss the legislation, saying the House bill is a work in progress. N. Gregory Mankiw, the current chairman of the White House Council of Economic Advisers, did not repudiate his passage on the matter in the Economic Report of the President--but he would not discuss it either. Treasury, which holds the core of tax policy expertise in the government, also declined to comment at length.

"We want a bill that solves the problem [of the illegal export subsidy], passes Congress, is as close to revenue-neutral as possible, and will strengthen manufacturers and other job creators," Treasury spokeswoman Tara Bradshaw said.

Such reticence has created bitter feelings among critics of the bills, as well as administration allies on Capitol Hill, who favored the White House approach but say they got no support. Ways and Means Committee spokeswoman Christin Tinsworth said the committee's chairman, Rep. William Thomas (R-Calif.), repeatedly pushed for a simpler bill with an across-the-board business rate cut, but could not get it past opponents who preferred a larger cut just for manufacturers.

Rep. Charles Rangel of New York, the ranking Democrat on the Ways and Means Committee, also weighed in: "The biggest manufacturing crisis since the Depression, combined with European sanctions on our goods, cried out for White House leadership. Instead, the Bush administration passed the buck to congressional Republicans. A simple solution was possible, and instead we have a special interest bonanza."

The administration may have good reasons to stay out of the fight, tax lobbyists said. The tussle over the legislation has pitted industry against industry and Republican against Republican.