Senate, House remain far apart on corporate tax bill

Thursday, June 17th 2004, 2:14 pm

By: News On 6

WASHINGTON (AP) _ Corporate tax bills passed in the Senate and in the House are widely divergent, starting with their most essential ingredients and extending into the many extras that hopped on for a ride.

The House gave corporations a rate cut; the Senate opted for a tax deduction spread among manufacturers of all sizes. The House tacked on a tobacco buyout and a state sales tax deduction; senators inserted restrictions on overtime rules and billions of dollars in energy production incentives.

Some businesses and many lawmakers want to see the bills passed as quickly as possible, and the bills must be reconciled before anything can become law.

The supporters urge quick passage to end escalating sanctions imposed by the European Union in retaliation for a U.S. tax break benefiting exports. The World Trade Organization declared it an illegal subsidy, and the corporate tax bill yanks it out of the nation's tax code.

In its place, the House and Senate proposed a combination of tax cuts for American manufacturers and simpler tax rules for multinational corporations. While lawmakers negotiate, punitive tariffs imposed on some U.S. exports to Europe, which now stand at 8 percent, will increase 1 percentage point each month.

``And remember,'' said Michael Baroody, executive vice president of the National Association of Manufacturers, ``the EU just expanded with 10 additional member countries from Central and Eastern Europe, and they also now are penalizing various U.S. exports.''

The House voted 251-179 on Thursday to pass its version of the bill. Democrats gave Republicans their winning edge, with 48 of them voting for the bill. Some backed a new federal income tax deduction for taxpayers in states that use sales taxes instead of income taxes to fund government operations.

Other Democrats backed $10 billion in payments to tobacco farmers over five years to end price supports started during the Great Depression.

The House bill's combined tax cuts and spending would reduce money flowing into the U.S. Treasury by $155 billion over the coming decade, but much of its cost is covered by the repeal of the tax break for exporters and other changes closing down tax loopholes and cracking down on tax evasion.

The Senate's bill is even larger than the House _ but its entire cost is covered with changes that bring new revenue into the federal government.

In many cases, House and Senate lawmakers steered toward similar goals but found different paths.

Lawmakers from both chambers wanted to help manufacturers. The Senate wants to let manufacturers of all sizes take a deduction from manufacturing income, while the House opted to gradually cut the top corporate tax rate from 35 percent to 32 percent.

The House and Senate take on tax shelters from different angles. Lawmakers agreed to prevent companies from leasing public assets like subways and trains to generate huge tax deductions. The House's version only looks forward and recoups about $20 billion; the Senate's broader crackdown covers foreign leased assets and brings in about $40 billion.

The House and Senate also try to stop taxpayers from taking inflated deductions when donating their cars to charities. The House would ask donors to get the vehicle appraised, while the Senate would ask charities to report the car's sale price to donors.

The bills come close to matching in new rules for taxes imposed on multinational corporations. Relatively small differences exist in sections of the two bills that are devoted to extending expiring tax breaks. Both bills contain a collection of tiny tax changes, in some cases identical, for specific businesses, including bows and arrows, tackle boxes, whaling, timber production, aircraft and liquor.

In other places, each body added wholly extraneous things not found in the other bill. That leaves House lawmakers to tackle energy production incentives and overtime rules found in the Senate's bill. The Senate must contemplate the tobacco buyout and sales tax deduction added in the House.

The vast array of add-ons has caused some, including a few conservative Republicans, to turn their noses up at the entire collection.

Keith Ashdown, vice president of Taxpayers for Common Sense, said future generations will bear most of its cost. ``With the nation at war and sky-high deficits, this is not the time to take a bazooka to the budget,'' he said.