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Manufacturing Tax Cut Would Help Few

Fight Could Scuttle Broad Legislation

By Jonathan Weisman and Jeffrey H. Birnbaum
Washington Post Staff Writers
Tuesday, August 10, 2004; Page E01

The centerpiece provision of the sweeping corporate tax cuts steaming through Congress would help only about 1.1 percent of the nation's 2.2 million corporations, leaving some of the most troubled domestic manufacturers with no benefit at all, according to an analysis by the nonpartisan staff of Congress's Joint Committee on Taxation.

The new analysis is fueling a quiet war between major, profitable companies that stand to gain from $63.3 billion in reduced manufacturing income taxes over the next 10 years and old-guard steel and automobile giants that already pay little or no tax under the current system. The steelmakers and auto giants instead want the government to pay as much as 10 percent of their burgeoning health care bills by granting billions of dollars in tax credits.

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The fight could imperil the most significant corporate tax legislation in 20 years if opponents convince lawmakers that the current version is cast too narrowly.

The findings "confirm my worst fears," Sen. John D. Rockefeller IV (D-W. Va.) said in a letter sent to colleagues last night. "More than 95 percent of manufacturing corporations -- the presumed targeted beneficiaries of the provision -- receive either no benefit or less than $50,000 of benefit."

Though advertised as a lifesaver for the nation's ailing manufacturing sector, the legislation would primarily benefit a handful of large corporations that have remained highly profitable during the country's long manufacturing slide -- companies such as Gillette Co., Dell Inc. and Johnson & Johnson.

Fewer than 25,000 companies would divide virtually all of the $63.3 billion in tax relief for domestic manufacturing contained in the Senate tax provision, the analysis found. Of manufacturing companies, fewer than 5 percent would benefit significantly.

The overall bill is considered must-pass legislation by lawmakers in both parties. It would repeal an illegal export subsidy that has led to punitive tariffs imposed by the European Union on U.S. exporters and replace it with a variety of tax cuts and special-interest provisions designed to ease the pain of the lost export benefit.

In fact, many more companies would benefit from the tax changes than did so from the export subsidy, which was worth about $5 billion annually to 1,886 exporters.

The Senate version, which passed in May by a 92 to 5 vote, effectively lowers the tax rate on domestic manufacturing to 32 percent from 35 percent. The House version contains a similar provision but broadens the impact by also creating a 32 percent tax bracket for any company with less than $20 million in non-manufacturing profit. The House version would ultimately lower taxes for almost all companies, but it would cost an additional $15 billion over 10 years -- a major political obstacle in the face of record budget deficits.

The Senate bill may be cheaper, but according to the committee staff's new analysis it may not be as generous as advertised. Most companies would get virtually no benefit from the corporate tax cut because most have little or no profit and thus pay little or no tax. The big winners, meanwhile, are truly big: The 500 companies that would reap the majority of the benefit have projected estimated manufacturing income of more than $4.5 trillion in 2005 alone, an average of $9 billion in profit each, Joint Tax Committee Chief of Staff George K. Yin wrote in a letter to Rockefeller.

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