The Senate yesterday broke a two-month deadlock and approved a major corporate tax bill that would end a trade dispute with Europe and shower U.S. corporations with billions in new tax breaks.
The bill, approved 92 to 5, would provide $170 billion in corporate tax cuts over the next decade to replace export subsidies previously granted to U.S. firms by Congress that prompted $4 billion in retaliatory tariffs by the European Union.
A different House version of the legislation has been stalled for months by disagreements among Republicans. But key senators said they believe Senate passage would help break the House logjam in time for enactment of the legislation later this year, and several House aides said they agreed with this assessment.
The Senate impasse ended after Democrats consented to limit debate in exchange for an agreement from Republicans to allow a vote on extending supplementary unemployment benefits for 13 weeks, an election-year priority for the Democrats.
But the vote on the unemployment measure turned into an embarrassment for Sen. John F. Kerry (Mass.), the presumptive Democratic presidential nominee. The Senate voted 59 to 40 for the proposal, one vote short of the 60 needed for approval. Kerry, who favored extending jobless benefits, was campaigning in Kentucky and was the only senator to miss the vote.
The corporate tax measure was prompted when the World Trade Organization outlawed about $5 billion in U.S. export subsidies and the European Union imposed retaliatory tariffs on an array of American-made products. The duties, imposed in March at 5 percent, are now 7 percent and would rise monthly until they reach 17 percent next March.
The legislation began as an effort to compensate U.S. exporters for the loss of their subsidies but gradually ballooned into something far larger: hundreds of pages worth of tax breaks to help hard-pressed domestic manufacturers, curb corporate tax abuses and bestow favors on special interests ranging from cruise ship operators to NASCAR track owners.
It would reduce income taxes for U.S. manufacturers and includes scores of more specific provisions that have been characterized by critics as a bonanza for special interests but defended by supporters as incentives needed for job creation.
It would also allow U.S. companies to bring profits earned overseas back to this country at a discounted rate for one year, put new limits on the outsourcing of work by federal contractors and make it less profitable for companies to move headquarters abroad to avoid U.S. taxes.
The $170 billion price tag would be offset by the repeal of the export subsidies and by curbing a number of corporate tax abuses by increasing penalties for violations, making it easier for the Internal Revenue Service to pursue tax shelters and other such steps.
Passage was important to demonstrate that the United States abides by its trade agreements, to end the punitive European tariffs, to encourage domestic manufacturing and to close some "very abused corporate tax loopholes," said Finance Committee Chairman Charles E. Grassley (R-Iowa), chief sponsor of the bill.
"This is the biggest loophole-closing bill in my memory," said Sen. Max Baucus (Mont.), ranking Democrat on the panel and Grassley's partner in writing the bill.
In addition to its original corporate tax breaks, the legislation was expanded several weeks ago to include $14 billion in tax incentives for energy production. The proposals were plucked out of the comprehensive energy bill that is stymied in the Senate, adding to the controversy over special-interest favors.
A proposal by Sen. John McCain (R-Ariz.) to strip out the energy provisions was defeated, 85 to 13, after senators of both parties argued that the energy tax breaks would help increase domestic production and create jobs.
McCain said the tax breaks amounted to a "shameless scam" that would help profitable industries and protect dubious technologies. The bill "has grown into a $170 billion Christmas tree of goodies for every conceivable special interest," McCain said.
Action on the tax measure had been repeatedly delayed as Republicans and Democrats sparred over Democrats' demands for votes on unrelated proposals. Republicans accused them of delaying tactics. Democrats did win one battle when they succeeded in adding a provision to block Labor Department rules restricting eligibility for overtime pay.
The unemployment proposal would have revived a program to pay an extra 13 weeks of assistance to an estimated 1.5 million people who have exhausted their standard 26 weeks of state benefits. A previous program expired in December.
After Kerry missed the vote, his campaign issued a statement saying Kerry had "fought again and again to extend unemployment benefits for workers left behind in the Bush economy" and blamed Bush and his GOP allies for the proposal's failure.