A March 5 article about tax proposals added to a House military bill misstated the distance between Ohio Rep. Rob Portman's district and a Wickliffe, Ohio, manufacturer of a fuel composed of diesel and water. The company-which would benefit from a $500,000 tax break over 10 years under the measure-is more than 200 miles from Portman's district. (Published 3/6/03)
Days before the House Ways and Means Committee took up an innocuous military bill last month, Chairman Bill Thomas (R-Calif.) made an offer to other Republican committee members at their weekly luncheon: prepare a wish list of tax breaks under $100 million each, and they could add them to the measure.
"It was Mr. Thomas's idea," said panel member Jim McCrery (R-La.), adding that Democrats declined the same offer. "Everybody in the meeting agreed there were a lot of little tax items we had not [been able to enact] the last couple of years. This was something that was going to move."
For a small cadre of local companies and one trade association, this was the equivalent of the lobbying mother lode. After years of trying, they would finally have their priorities added to a bill likely to become law -- even if there were no guarantees that their amendments would remain intact throughout the legislative process.
The first test will come Thursday when the full House will take up the bill, which was designed to extend several tax benefits to members of the military. If the House accepts the committee's version, and it survives an eventual conference committee with senators, then racetrack owners and horse breeders would have an easier time enticing foreigners to bet on their races; an alternative type of diesel fuel would get a tax break, and U.S.-made bows and arrows would sell for less.
Some Democrats have reacted angrily, saying it is wrong to push special tax breaks just as the nation prepares for war in Iraq and the federal deficit continues to soar. Rep. Martin Frost (Tex.) said he and other Democrats hope to strip the provisions from the bill Thursday. "We don't have to be adding to that deficit, particularly with things that are unrelated to our troops."
Rep. Charles B. Rangel (N.Y.), the committee's top Democrat, concurred. "While some Republicans say we cannot afford more money for states, public schools and homeland security, they have no problem spending hundreds of millions on these pet provisions," he said. "In normal times, that's hypocritical. In a time of war, that's shameful."
In an interview after the committee vote, Thomas noted that the bill has been changed a few times through the process.
"It's a matter of degrees," he said, adding that the GOP amendments were justified on policy grounds. "At what point do you say the degrees were too far?"
The amendments, which added more than $300 million in tax breaks to the bill, prove that patient and dogged advocates can get their proposals translated into legislation over time. Marrying a broad policy pitch with an appeal to members' parochial interests, these groups managed to slip their desired tax cuts into the previously little-noticed bill.
The National Thoroughbred Racing Association teamed up with the American Horse Council and American Quarterhorse Association several years ago to convince McCrery and other lawmakers that the United States should eliminate a 30 percent tax for foreigners who bet on American horse races.
Tim Smith, the thoroughbred association's commissioner, estimated that $700 million a year is wagered in Canada on U.S. races. If the 30 percent tax were eliminated, advocates say, many of those bets would be included in the broader U.S. betting pool. "It would almost certainly increase foreign wagering on U.S. horse racing," Smith said. "It would boost both the entertainment side of our business and the agribusiness side."
If a Canadian bets in Canada on a U.S. horse race and wins, he gets to keep all the winnings. Canadian racetracks pay U.S. tracks 3 percent of the money wagered north of the border -- about $21 million a year -- for the right to show U.S. races. Under the McCrery plan, Canadians' bets would be commingled with the larger U.S. pool and the winnings would be divided accordingly. Canadians would not have to pay U.S. taxes, but the track owners and breeders would reap the benefits of bigger business.
The groups had a key ally in a college friend of McCrery's named J.D. Blondin, a past president of the quarterhorse association who now sits on the Louisiana State Racing Commission. The thoroughbred association hired the Washington firm of O'Brien Calio, now named the OB-C Group, to make its case in Congress. The association also gave liberally to congressional candidates in 2001-02. It funneled $75,000 to the National Republican Congressional Committee, $50,000 to the National Republican Senatorial Committee and $15,000 to the Democratic Congressional Campaign Committee.
"Obviously, knowing J.D., I would listen to him," McCrery said, adding that he usually turns down his friends' legislative requests but decided this one was worthy. Under the current system, he said, "there's no money coming in because nobody's stupid enough to place a bet in our betting pools, knowing they have to give away 30 percent of their money."
The proposed tax break would cost the Treasury almost nothing, Smith said, because so few foreigners now bet in America.
Rep. Gerald C. Weller (R-Ill.), by contrast, offered a measure that is aimed at makers of fishing tackle boxes and carries an estimated cost of $30 million over the next decade. The beneficiary? Plano Molding Co., an Illinois company based just outside Weller's district that has been lobbying the issue for more than four years.
"It's been one of those things that's been out there . . . for years and we've had trouble getting it across the finish line," Weller spokesman Ben Fallon said. He noted that if consumers chose to put their fishing gear in sewing kits, they would not have to pay the 10 percent excise tax that applies to tackle box purchases.
Lubrizol Corp. was another winner; the committee voted to lower taxes on the company's brand of fuel, composed of diesel and water. Located just outside GOP Rep. Rob Portman's district in Wickliffe, Ohio, the company produces an environmentally friendly fuel that includes 20 percent water.
Lowering the excise tax from 24.3 cents to 19.7 cents per gallon would provide "an incentive" for consumers to buy Lubrizol's product, Portman spokesman Jim Morrell said.
Kevin Snape, the company's manager of economic policy and regulatory affairs, said the company simply wanted to pay taxes only on the diesel portion of the fuel, since the tax is geared toward diesel products. Portman was a natural ally.
"He's the Ohio seat of the Ways and Means Committee; it's really that simple," Snape said. "It took him about half a second to figure this one out."
The House is expected to pass the military bill this week, and then may face reconciling its version with a Senate measure that does not include the added tax breaks. McCrery, pushing his racing amendment, said: "I'm optimistic this will make it into law at some point, because it makes too much sense. Whether it's going to make it into law on this bill, I don't know."