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Congress Passes $145 Bln Corporate Tax Cut

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  • Congress Passes $145 Bln Corporate Tax Cut

    Can anybody explain how it makes sense to give tax breaks to Corporations when the budget deficit runs to about $500 billions?

    Congress Passes $145 Bln Tax Cut, Ends Export Subsidy

    Oct. 11 (Bloomberg) -- The U.S. Congress approved a $145 billion bill providing new corporate tax breaks and a buyout for tobacco farmers as part of legislation that eliminates an export tax credit ruled illegal by the World Trade Organization.

    The Senate passed the bill 69-17, four days after the House approved the measure. The legislation will end European Union sanctions on products such as wood, paper, clothing, and jewelry and create jobs in the U.S., said Senator Charles Grassley, the Iowa Republican who chairs the Finance Committee.

    ``This is a well-balanced bill,'' Grassley said. ``It accomplishes a goal that we should have accomplished a year and a half ago.''

    The Senate's vote caps a two-year effort to repeal the Foreign Sales Corporation rule, a $50 billion tax break that the WTO said violated international trade rules. The WTO authorized the EU tariffs, which started at 5 percent in March and reached 12 percent on Oct. 1. If fully phased in, the sanctions would cost U.S. companies $4 billion a year.

    The bill, which benefits manufacturers and companies with overseas business, will be sent President George W. Bush for signature into law ``as soon as possible,'' said Amy Call, a spokeswoman for Senate Majority Leader Bill Frist of Tennessee.

    In Brussels, EU Trade Commissioner Pascal Lamy said the export subsidy, which will be phased out over three years, may remain in place for some companies for too long. He said the commission would study ``in particular'' the transition period and other provisions that may let American businesses continue to claim the benefit during the phase-out period.

    ``I am pleased that Congress has finally take this step towards U.S. compliance with the WTO ruling,'' Lamy said. ``It vindicates the EU's patient but firm approach.''

    Tax Breaks

    The export tax break that is being phased out primarily benefits a dozen exporters including Redmond, Washington-based Microsoft Corp., Chicago-based Boeing Co., and Peoria, Illinois's Caterpillar Inc. and puts in its place a $76.5 billion tax cut for a wide range of manufacturers, including energy producers such as Irving, Texas-based Exxon Mobil Corp. and electric utilities. That measure reduces manufacturers' rates to 32 percent from 35 percent.

    The legislation also reduces taxes by $42.6 billion over the next decade for companies operating internationally such as General Electric Co., New York's Citigroup Inc., and Hewlett- Packard Co., based in Palo Alto, California. General Electric, which runs its world operations from Fairfield, Connecticut, may save more than $8 billion over the next decade from these changes by avoiding U.S. taxes on the foreign profits of its financing businesses, according to an analysis by Democrats on the House Ways and Means Committee.

    ``There is so much stuff in here that everybody is happy to some degree,'' said Bill Reinsch, president of the National Foreign Trade Council in Washington, which represents companies such as Boeing and Detroit's Ford Motor Co.

    The legislation faced opposition from dozens of senators including Massachusetts Democrat Edward Kennedy and Ohio Republican Mike DeWine who were angry that House and Senate negotiators removed from the bill a provision authorizing the Food and Drug Administration to regulate tobacco products, including cigarette advertising.

    The bill ``is a lobbyist dream and a middle class nightmare,'' Kennedy said. ``It's an embarrassment to a representative democracy.''

    The bill also drew criticism from Republican Senator John McCain of Arizona, who called it ``the worst example of the influence of special interests that I have ever seen.''


    The Senate added the FDA authority to the legislation earlier this year after the House added to the bill a $10.1 billion industry-financed payment to tobacco farmers to forgo Depression-era subsidies in order to gain dozens of votes from Democrats in tobacco-farming states.

    `` It is absolutely irresponsible to address a quota buyout for tobacco farmers, as this conference report does, while ignoring the urgent need for FDA authority to prevent cigarette companies from entrapping our kids,'' Kennedy said during floor debate.

    The bill contains dozens of tax breaks tailored to narrow constituencies, including a one-year opportunity for multinational companies such as Hewlett-Packard and Indianapolis- based Eli Lilly & Co. to return foreign profits to the U.S. at a tax rate of 5.25 percent, instead of the usual 35 percent rate.

    State Sales Tax

    The bill also reinstates for two years a pre-1986 law allowing residents of nine states without an income tax to deduct state and local sales taxes on their federal tax return. The tax break, good in 2004 and 2005, will save residents of Texas, Tennessee, Alaska, Nevada, Florida, Washington, South Dakota, and Wyoming about $5 billion, according to the Joint Committee on Taxation.

    Hewlett-Packard Co. and Eli Lilly & Co. won a one-year 85 percent reduction on the U.S. tax they pay when they bring home profits earned outside the U.S. They failed to obtain a lifting of restrictions on the use of that money. The legislation requires companies that claim the deduction to use their repatriated profits to create jobs and limits their ability to use the cash for other pursuits, such as dividends for shareholders.

    Most companies now leave their foreign profits overseas rather than pay the 35 percent U.S. tax they face if they repatriate the money.

    Companies that benefited from the export tax break, including Microsoft, Caterpillar and Boeing, will get less tax relief from the manufacturing tax break and the changes to international tax rules than they got under the old rules.

    Treasury Secretary

    Treasury Secretary John Snow last week criticized the bill because it included a ``myriad of special interest tax provisions'' benefiting cruise ship operators, NASCAR, makers of bows and arrows and fishing tackle boxes, and importers of ceiling fans such as Home Depot Inc, based in Atlanta, Georgia.

    Treasury spokeswoman Tara Bradshaw said Snow finds the final bill acceptable.

    ``While we would have liked to have seen more of the targeted tax provisions eliminated, the overall bill is positive for American workers and because Congress has reduced the cost of these provisions, the bill is now budget neutral,'' she said.

    Keith Ashdown, vice president of tax policy at Taxpayers for Common Sense, a nonpartisan research institution, said the bill ``is a bonanza of bailouts to the nation's biggest companies that are already not paying their fair share.''

    Deficit Impact

    The legislation would cut taxes for corporations by a net $17.5 billion during the next three years. It wouldn't have an impact on federal deficits over a 10-year period because most of the tax cuts would be paid for with tax-raising provisions that penalize companies for abusing tax shelters and fuel tax laws, Grassley said.

    ``This bill does not add one dime to the federal deficit,'' he said.

    It also ends a tax break that encourages small business owners to buy luxury sports utility vehicles that was costing the U.S. government $137 million a year.

    The bill raises $27 billion by banning companies such as Wachovia Corp., Bank of America Corp., both of which are based in Charlotte, North Carolina, and New York's Altria Group Inc. from claiming depreciation tax breaks by leasing transit systems, sewer systems, air traffic control systems and other publicly funded infrastructure without actually operating them.

    It also makes it more costly for companies to move from the United States to a tax-haven country like Bermuda, making it less attractive for companies that had considered such a move, called a ``corporate inversion'' like Connecticut's The Stanley Works considered making in 2002.

    To contact the reporter on this story:
    Ryan J. Donmoyer in Washington at

    To contact the editor responsible for this story:
    Glenn Hall at

  • #2
    Another very informative article on share of Corporate taxes in the total federal taxes, a must read!

    U.S. corporations paying less in taxes
    Trend credited partly to offshore tax shelters, other loopholes

    By Dan Ackman
    Updated: 10:17 a.m. ET Sept. 23, 2004

    The effective tax rate for America's largest and most profitable corporations has sharply declined in recent years, and one third of such companies paid zero taxes ó or less ó in at least one of the last three years, according to a study released yesterday.

    At the same time, IRS data indicates that the overall share of federal taxes paid by corporations in now less than 10 percent, down from nearly 13 percent in 1997.

    The study released yesterday by Citizens for Tax Justice and the affiliated Institute on Taxation and Economic Policy finds that in 2003 alone, 46 of the 275 companies it reviewed paid no taxes at all in 2003, despite reporting a total of $42.6 billion in pre-tax profits. Indeed, these companies received $5.4 billion in tax rebates that year. In the last three years, 82 of the country's largest profitable corporations paid no federal income tax for at least one year of the Bush administration's first three years, the study found.

    The overall effective tax rate for these companies was 17.2 percent in 2003 and 2002, down from 21.4 percent in 2001. The current effective rate is about half the putative 35 percent tax rate on the profits of large companies.

    This trend occurred against a backdrop of rising corporate earnings. The study attributes the trend to the widening availability of offshore tax shelters and other lawful avoidance techniques. Together the companies reported profits of $1.1 trillion over the three-year period and paid about $189 billion in taxes. The reduction from nominal rates was caused by the companies' abilities to shelter $540 billion in the pre-tax profits reported to shareholders.

    The recent drop in effective corporate tax rates is also underscored by the declining share of all taxes paid by corporations. In 1998, corporations paid 12.1 percent of all federal taxes, according to IRS data. That year, individual taxes accounted for 52.5 percent of taxes paid and employment taxes accounted for 31.5 percent of the total. For 2003, corporations paid 9.9 percent of the total and individuals paid 50.6 percent. The biggest change was in the percentage covered by payroll taxes (Social Security and Medicare), which jumped to 35.6 percent of the total.

    Over the longer term, the percentage of taxes paid through individual returns has, since 1980, fluctuated between 49 percent in the low year of 1992 and 56 percent in the high year of 1982. The corporate tax share has gone up and down within a narrower 10 percent to 12 percent range. But in 2001, corporate taxes were just 8.8 percent of the total; they rose to 10.5 percent in 2002 before falling to 9.9 percent last year, according to IRS data.

    What the Citizens for Tax Justice terms "loopholes and other tax subsidies" led to savings of $71 billion for the biggest companies in 2003, up from 43.4 percent in 2001. Half of the "tax-break dollars" over the three-year period went to just 25 companies, the study says. All told, 82 companies paid zero or negative taxes in at least one of the last three years and 28, including Boeing, paid negative taxes for the entire period.

    The largest beneficiaries were some of the most profitable companies: General Electric, SBC Communications, Citigroup, IBM and Microsoft. Of the 10 most profitable U.S.-based companies on the Forbes 2000, only Wal-Mart and Freddie Mac do not appear on the study's list of top 25 tax break beneficiaries. (MSNBC is a joint venture of Microsoft and NBC, which is a GE company.)

    The primary reason for the decline in corporate tax payments was changes in the law allowing for accelerated depreciation of investments. This rule "is technically a tax deferral, but so long as the company continues to invest, the deferral tends to be indefinite," the study says. It also points to the deduction for tax purposes of stock option grants, which companies do not deduct for the purpose of reporting profits to shareholders, though there has been much talk about changing the rule for profit accounting purposes as well.

    Bruce Schaefer, a New York corporate tax lawyer and author, cites another reason for the reduction in tax payments by companies. "There used to be no deductions for any intangible asset for which you could not prove a useful life, with goodwill being the primo example; now there is."

    The study says that the changes in corporate tax laws rules have not had their desired effect of spurring investment. Since 2003, the 25 companies that saved the most from the new rules actually reduced their investment in property, plant and equipment by 27 percent. The remaining 250 companies surveyed reduced their investments, too, but by much less, 8 percent.

    © 2004


    • #3
      I love the subsidy buy out for tobacco farmers. It's the equivalent of paying welfare mothers to give up welfare. Shameful.


      • #4
        Can anybody explain how it makes sense to give tax breaks to Corporations when the budget deficit runs to about $500 billions?
        You mean steeling less of peoples money is a bad thing?

        The problem is not that taxes aren't high enough but that the Government is spending 1.4 trillion (per year)dollars on stuff it shouldn't.


        • #5
          Originally posted by Praxus
          You mean steeling less of peoples money is a bad thing?
          Not at all.
          It is particularly bad when govt. steals from ordinary people and gives it to rich corporations in the name of corporate welfare.

          The problem is not that taxes aren't high enough but that the Government is spending 1.4 trillion (per year)dollars on stuff it shouldn't.
          Corporate share in the total tax collected have steadily come down from 30% during the prosperous days of Eisenhour to less than 10% when increasigly more number of Americans are living a life of hardship.

          PS: you did not the articles, did you?


          • #6
            Companies, businesses, shouldn't be paying tax.
            No man is free until all men are free - John Hossack
            I agree completely with this Administrationís goal of a regime change in Iraq-John Kerry
            even if that enforcement is mostly at the hands of the United States, a right we retain even if the Security Council fails to act-John Kerry
            He may even miscalculate and slide these weapons off to terrorist groups to invite them to be a surrogate to use them against the United States. Itís the miscalculation that poses the greatest threat-John Kerry


            • #7

              October 13, 2004
              How Tax Bill Gave Business More and More
              By EDMUND L. ANDREWS

              ASHINGTON, Oct. 12 - Senator Charles E. Grassley needed every possible vote to pass his mammoth corporate tax bill. So he was more than willing to accept Zell Miller's plea on behalf of imported ceiling fans.

              Senator Miller, the Georgia Democrat who became a Republican hero at the party's convention with his impassioned denunciation of Senator John Kerry, was determined to help Home Depot, the home-improvement chain based in Atlanta. And Home Depot, which sells about half of all ceiling fans in the United States, wanted an end to the tariff on imported fans, most of them from China.

              On Monday, everybody involved was a winner. The Senate gave final approval to Mr. Grassley's bill, which would shower $137 billion in tax breaks into every corner of industry. While the bill's primary purpose is to bolster American manufacturers, it will also help Chinese ceiling-fan companies by eliminating $44 million in tariffs over the next two years. President Bush is expected to sign the bill into law shortly.

              The Home Depot provision is just one tiny example of how the need to solve a narrow tax problem in 2002 gave birth to the biggest free-for-all in corporate lobbying that Congress has experienced in nearly 20 years.

              The story began nearly three years ago, with an initial impetus simply to replace a $5 billion annual tax break for American exporters that the World Trade Organization had ruled was illegal. It ended this week with a 633-page behemoth that offers new tax giveaways to everyone from corporate titans like Boeing and Hewlett-Packard to an array of oil and gas producers, shopping mall developers, wine distributors, even restaurants. Many companies, like General Electric and Dell, are likely to end up with far more tax relief under the new bill than they had ever received from the old tax break. Some, like Exxon Mobil, never qualified for the old tax break at all but will enjoy tax savings now.

              Even the "losers" came away with something. Movie executives are complaining that they were punished at the last minute, when House Republicans stripped out about $1 billion worth of tax credits, in part because the industry is closely identified with the Democratic Party. But they still held on to $336 million in tax breaks for movies made in areas with high unemployment.

              Similarly, the final bill would also raise more than $60 billion by cracking down on major tax shelters and punishing companies that try to avoid American taxes by moving their headquarters outside the country. But in a gesture of mercy to a handful of oil service companies from Texas, House Republicans gave a green light to companies that moved offshore before March 4, 2003. The beneficiaries of that decision include the Noble Corporation, Weatherford International, Cooper Industries and Nabors Industries - all in or near the district of Tom DeLay, the House majority leader.

              "It was a perfect storm for pork, in that they added all these provisions that were really important to lawmakers in an election year,'' said Keith Ashdown, vice president of Taxpayers for Common Sense, a nonpartisan public-interest group in Washington. "It will take days, if not months, to figure out everything that's in here.''

              Within the Washington Beltway, the political logic was in many ways predictable. What was not predictable was how brazen and open the frenzy would ultimately become.

              House and Senate leaders knew from the start that any attempt to tinker with corporate taxes would set off intense lobbying, as every major company and every industry association scrambled to protect existing preferences and push for new ones.

              After nearly two years of feuding among rival interest groups, the House and Senate both passed bills this year that would essentially replace the old tax break with rate cuts on profits from domestic manufacturing.

              But under heavy pressure from big multinational corporations, both chambers also included about $42 billion worth of tax reductions on the foreign earnings of companies based in the United States.

              Corporate executives defended the tax cuts on foreign profits, saying that American companies were at a competitive disadvantage because most other countries tax profits earned only inside their borders.

              To build support for their bills, House and Senate leaders openly invited lawmakers and industry groups to draw up their own wish lists for special tax provisions. By last spring, the Senate bill had ballooned to more than 700 pages.

              It suddenly included billions of tax breaks for oil and gas companies and renewable energy that had been in last year's energy bill, which collapsed amid bitter partisan and industry feuding in November 2003.

              One of those provisions was Home Depot's tariff reduction on ceiling fans, which was slipped into the House's tax bill this summer and agreed to by Mr. Grassley, Republican of Iowa, to please Mr. Miller.

              The bill also greatly expanded the traditional definition of "manufacturing,'' enabling a much greater range of companies to qualify for tax reductions.

              Under pressure from the Bechtel Corporation, the engineering contractor, for example, Senate leaders included engineering as a form of manufacturing. They also included any companies involved in timber and the "extraction'' of minerals, which extended fresh benefits to companies like Exxon Mobil and BP Amoco, as well as electric companies.

              Meanwhile, lawmakers pressed hard to win approval for pet tax breaks that had been lying around for years but rejected on previous occasions. Among the items that made it into the final bill were a $9 million tax reduction on bows and arrows; $27 million in tax breaks on gambling income of foreigners at American horse-racing and dog-racing tracks; and $11 million in reduced excise taxes on fishing tackle boxes, a longtime pet project of J. Dennis Hastert, the House speaker, whose district includes a big producer of tackle boxes.

              Given the need to pass some sort of bill, if only to spare the costly, escalating sanctions on exports imposed by the W.T.O. to force compliance, every tax lobbyist in town was engaged in the fight to win something for their clients and block changes that might cost them money. That stretched out the process.

              "It's always difficult when you have a finite pie that you're trying to divvy up,'' said Donald G. Carlson, a former chief of staff on the House Ways and Means Committee who lobbied for numerous provisions in the bill. "When you have to pick winners and losers within the corporate community, that is always a messy process that Congress is reluctant to undertake.''

              House and Senate leaders were stalled for months by feuding, made all the more difficult as the combination of tax breaks in both the House and Senate versions vastly outstripped the money to pay for them.

              Representative Bill Thomas, Republican of California and chairman of the House Ways and Means Committee, rejected most of the energy tax breaks included in the Senate bill.

              But one provision that he included was Mr. Miller's tariff reduction for ceiling fans. Strictly speaking, the tariff reduction had nothing to do with taxes and would, if anything, make life harder for American companies competing with the imports. Mr. Miller argued that the tariff was pointless because there were no American ceiling fan manufacturers, and that there had not been any for many years. In the meantime, he contended, retailers like Home Depot were forced to charge higher prices.

              Mr. Thomas, often known for scathingly denouncing "extraneous" provisions in his tax bills, quietly supported the ceiling fan provision in the certain knowledge that Mr. Grassley on the Senate side would go along.

              One reason may well have been Mr. Miller's passionate denunciation of his own Democratic Party in a recent book as well as his keynote speech at the Republican convention.

              Amid all the horse trading, the biggest deal involved tobacco farmers and cigarettes. Knowing he needed at least some Democratic votes, Mr. Thomas added in a provision in the summer that would create a $10 billion buyout program for tobacco farmers.

              Tobacco state lawmakers had been pushing for such a buyout for years, because demand for tobacco and the value of tobacco-growing quotas had been declining for years.

              The tobacco deal created a sensation in North Carolina, where Republicans and Democrats are in a tight race to capture the Senate seat being vacated by John Edwards, the Democratic vice-presidential candidate.

              The Senate, pressed by a bipartisan group of lawmakers, voted to link the tobacco buyout with a historic change that would subject cigarettes and other tobacco products to regulation by the Food and Drug Administration. But House Republicans adamantly rejected any new regulation for cigarettes, omitting the provision in a conference bill last week and easily defeating Senate attempts to put it back in.

              "I got a lot of calls from people in Ohio who were very concerned that the bill might not pass,'' said Senator Mike De Wine, Republican of Ohio, who fought for tobacco regulation. "But to me it was a bigger principle."

              It remains unclear how soon all the trouble will actually solve the original problem, which is that the European Union is imposing punitive tariffs on up to $4 billion worth of American exports as long as the old tax break remains in force.

              The new bill would eventually eliminate the tax break, but it would provide a "transition period'' lasting several years, which may leave it still technically in violation of the trade organization's ruling.

              European officials are ultimately expected to go along, but they have been coy. On Monday, Pascal Lamy, the European Union's trade commissioner, said simply, "We will now carefully study the details in the final compromise.''


              • #8
                These tax "breaks" aren't tax breaks -- they're hidden subsidies just like the home mortgage deduction. I agree with Confed, businesses should pay as little in tax as possible, but masking subsidies as 'tax breaks' isn't the way we should get there.

                Sigh...the flat tax will never be adopted. Too bad. :-(


                • #9
                  Originally posted by Prodigal Son
                  These tax "breaks" aren't tax breaks -- they're hidden subsidies just like the home mortgage deduction. I agree with Confed, businesses should pay as little in tax as possible, but masking subsidies as 'tax breaks' isn't the way we should get there.

                  Sigh...the flat tax will never be adopted. Too bad. :-(

                  I agree with the flat tax. I wouldn't mind at all. I know very little about taxation, but I find it frustrating that I tell the government to take the "maximum" out of my check, yet at the end of the year I owe money! Did I not say to take out the max?

                  With these tax issues being debated, I wonder why the politicians argue about who's going to give the rich a break and who's going to give the middle class a break. Why aren't the thinking about the lower class? Aren't these the people who really need the help? Or is it that these people are the least likely to vote or contribute to their campain?