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Business Gets Big Breaks in Tax Bills

The Budget

From the Post
  • House Passes GOP Tax Cut Package (July 23)

  • Tax Cut Beneficiaries (July 23)

  • GOP Leaders Avert Revolt (July 22)

  • Hastert Seeks GOP Unity On Tax Cut (July 21)

  • House GOP Offers Rival Tax Cut Plan (July 20)

  • By Dan Morgan
    Washington Post Staff Writer
    Saturday, July 24, 1999; Page A1

    After years of tight budgets and a Congress focused on cutting the deficit, business this week cashed in on the new economic climate to win billions of dollars in breaks tucked into the tax bill that passed the House and another working its way through the Senate.

    Capitalizing on the new era of government surpluses are multinational corporations, utility companies, railroads, oil and gas operators, timber companies, the steel industry and small business owners.

    Along with the breaks for those behemoths, smaller provisions sprinkled through the bills will give tax relief to seaplane owners in Alaska, sawmills in Maine, barge lines in Mississippi and investor Warren Buffett. Other provisions assist Eskimo whaling captains on Alaska's North Slope and Carolina woodlot owners.

    The House version contains almost $100 billion in direct tax breaks for business over the next decade -- and dozens more provisions that will benefit various industries indirectly. The Senate Finance Committee reported out a different and less generous measure giving business about $50 billion in direct tax relief.

    While special provisions in tax and budget bills are a staple of life in Washington, the difference this time is that, with a projected $3 trillion budget surplus over the next decade, the lawmakers enjoyed far more flexibility to gratify lobbyists' wishes.

    "If you're a business lobbyist and couldn't get into this legislation, you better turn in your six-shooter," said a Democratic lobbyist. "There was that much money around."

    The Republican tax plans, which would cut nearly $800 billion in taxes over the next 10 years, face a long and uncertain road, and are sure to be sharply scaled down before President Clinton will agree to sign them.

    Still, the sections providing tax relief for corporations make clear that business intends to use its political muscle to claim its share of the surplus.

    Republican leaders strongly defended the tax concessions, saying they are needed to strengthen the competitiveness of U.S. global business, help distressed industries such as steel and oil, and encourage mergers that make the economy more efficient. And they noted that the bulk of tax cuts in the bill go to benefit families.

    But some critics -- even within the GOP -- said the largess to special interests repudiates the party's pledge to eliminate "corporate welfare."

    "Republicans promised to change this kind of behavior," said Sen. John McCain (R-Ariz.), an opponent of "pork barrel" spending. "But I think it's fairly obvious that hasn't been the case. Now we're going to see this big thick tax code on our desks, and the fine print will reveal another cornucopia for the special interests, and a chamber of horrors for the taxpayers."

    Tax concessions to the oil and gas industry, as well as nuclear utilities, have also drawn some early fire from environmental and consumer groups.

    "At a time when we should be curbing smog and global warming, these bills are going to give billions of dollars in tax breaks to the companies responsible for these problems," said Anna Aurelio, staff scientist at U.S. Public Interest Research Group.

    Budget analysts cited a single, sizable item to illustrate how the new budgetary climate has opened up possibilities for corporations.

    Since the mid-1980s, multinational corporations have attempted to secure changes in the tax code that would allow them to allocate their worldwide interest deductions in such a way as to generate additional foreign tax credits -- and thereby trim their tax bills. The U.S. Treasury has been largely supportive. But according to a lobbyist for a major international bank, "Nobody thought it could get done because it would cost so much money."

    This year, both House and Senate bills include the tax relief. The House proposal would cost $34 billion in lost revenue to the government over the next 10 years, and the slightly more modest Senate version would cost $14 billion.

    "For so many years Congress was totally focused on raising revenues," said Douglas P. Bates, chief lobbyist for the American Council of Life Insurance. "These were really the first tax bills in a long time where the revenue offsets [the need to find money to make up for cuts elsewhere] weren't driving the issues."

    Bates experienced that first-hand. He spent much of the week dispatching a series of e-mail messages to the organization's 500 members, alerting them to beneficial provisions that were added to the bills as they moved through the Senate Finance Committee and the House.

    When the dust settled, the full House and Senate committee had approved a series of provisions that had long been on the group's wish list, including deductibility for long-term care insurance and changes in rules governing corporate pension plans. ACLI officials said the changes should create new business for life insurance companies that manage corporate pension plans or offer long-term care coverage.

    After years of trying, ACLI also scored a major victory when it got the House to support repeal of a tax provision that delays the ability of life insurance companies to file consolidated returns, or write off losses of newly acquired affiliates against their own profits. The 10-year savings to the industry from that provision alone would be $949 million, according to the Joint Committee on Taxation.

    ACLI Chairman Carroll A. Campbell Jr., a former member of the House Ways and Means Committee, met with committee Chairman Bill Archer (R-Tex.) to press for the change, sources said.

    The change is deemed crucial to a wave of insurance company mergers, including the recent one between Provident Insurance Co., of Chattanooga, in the home state of Sen. Fred D. Thompson (R), and UNUM Corp., of Portland, Maine. Thompson, a member of the Senate Finance Committee, persuaded committee Chairman William V. Roth Jr. (R-Del.) to add part of the House provision to his tax draft hours before it was brought before the committee.

    ACLI also joined with a coalition of banks and securities firms to get both the full House and Senate Finance Committee to extend for five years a temporary tax deferral on income those industries earn abroad.

    The companies, working under the umbrella of the Coalition of Service Industries, will save some $5 billion in taxes over 10 years as a result of the provision, according to congressional calculations.

    As uncertain as the prospects for the across-the-board tax cuts for families are, the tax relief for business seems likely to create its own pressure on Clinton and Congress to agree on legislation. And with tens of millions of dollars in campaign contributions at stake, neither party can afford to ignore business's drive for extensive tax relief this year.

    "Business doesn't want a repeat of last year when there was no tax bill, just a bunch of extenders [of provisions about to expire.] It would be nice if this wasn't just a political exercise. There's enough money that I think they can work this out," said John Porter, an Ernst & Young tax expert.

    An example of the huge stakes is the more than $1 billion that the utility industry stands to save in taxes over the next 10 years if a House provision affecting utility mergers survives.

    The provision, sponsored by Rep. Gerald "Jerry" Weller (R-Ill.), a Ways and Means Committee member, would excuse the payment of taxes on the fund that utilities set up to cover the costs of shutting down nuclear power plants.

    Weller, who has three nuclear facilities in his district, said the tax provision is crucial to the restructuring underway in the utility industry as the nation moves to a deregulated electricity market. One immediate effect would be to hasten the merger of Decatur, Ill.-based Illinova Corp. and Dynegy Inc., a Houston natural gas company.

    The issue, Weller said, was important to the entire Illinois delegation, including House Speaker J. Dennis Hastert (R), though he added he has not spoken to Hastert about the matter.

    But some consumer groups are wary.

    "The nuclear industry has already been getting a ratepayer-funded bailout in state electricity reorganization plans. Now they're going for federal tax breaks too," said U.S. Public Interest Research Group's Aurelio.

    Several environmental groups this week said they were still studying provisions in both the House and Senate versions of the bill that would allow timber companies to write off the cost of replanting trees over seven years, rather than recovering those costs when they sold the trees.

    "We see this as a huge win for the environment," said Michael Kelin of the American Forest and Paper Association, which lobbied Rep. Jennifer Dunn (R-Wash.) and other timber state members. "This will lead to a greener America."

    The Big Winners

    Big Business
    Relaxation of pension and health plan regulations; bills also lift some ceilings on defined pension benefits.

    Expanded availability of foreign tax credits, by allowing global allocation of interest deductions (both bills).

    Small Business
    Repeal or reduction of estate taxes (both bills).

    House restores 80 percent deductibility of business meals.

    Banks, securities firms
    Bills extend ability to defer taxes on income earned abroad until money is returned home.

    Railroads, barge lines
    Both bills repeal 4.3 cents per gallon tax on rail diesel and barge fuels.

    House reduces capital gain on sale of trees.

    Both bills allow seven-year amortization of costs of replanting trees, lifting current cap.

    House bill would end five-year restriction against life insurance companies writing off losses of affiliates against profits.

    House and Senate allow deductibility of long-term care insurance.

    Oil and Gas
    House bill allows expensing of environmental remediation costs; expands net operating loss carryback to five years; extends suspension of income limits on percentage depletion allowance.

    In utility mergers, the House bill allows acquiring companies not to pay tax on funds previously set aside to cover future costs of decommissioning nuclear plants.

    House allows manufacturers to use alternative minimum tax credit carryover to reduce 90 percent of AMT liability.

    © 1999 The Washington Post Company

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