Corporate Tax Bill Faces Opposition

Tuesday, October 5th 2004, 10:03 am

By: News On 6

WASHINGTON (AP) _ House and Senate negotiators hope to wrap up work on a major rewrite of corporate tax law that would end a nasty trade dispute with Europe while showering more than $130 billion in tax breaks on a wide variety of businesses from ethanol producers to movie makers.

But first they must resolve a battle over regulating tobacco products.

The 41-member House-Senate conference committee that is trying to resolve differences between the two chambers prepared to deal on Tuesday with a long list of amendments in an effort to get a final bill finished and ready for passage in both the House and Senate before expected adjournment Friday.

House Ways and Means Committee Chairman Bill Thomas, R-Calif., prepared a 600-plus page draft the conference committee was using as the basis for debate for amendments being offered by Senate and House negotiators.

The biggest obstacle to passage was shaping up to be a fight over tobacco. Thomas' proposal would pay $10 billion to compensate holders of Depression-era quotas needed for growing tobacco, a move that is popular in tobacco-growing states.

However, Thomas' draft did not include a Senate-passed provision that would let the Food and Drug Administration regulate tobacco as a drug, an omission that Senate supporters of the proposal were going to try to correct with an amendment on Tuesday.

But with Republicans in the majority on the conference panel, it was unclear whether the FDA measured could pass. Without it, some senators raised the possibility of a Senate filibuster against the entire bill, an action that would almost certainly doom passage with so little time left.

With an eye toward the Nov. 2 election, the measure has been loaded up with a wide array of tax breaks for farmers, fishermen, film makers and a wide array of U.S. businesses. Makers of ethanol, the gasoline additive produced from corn, would get tax incentives to boost production.

The major element of the bill would repeal a $5 billion annual subsidy hundreds of American companies get which has been ruled an illegal export subsidy by the World Trade Organization.

Until Congress repeals this export subsidy, more than 1,600 exports to Europe are being hit by a 12 percent penalty tariff that has been rising by 1 percentage point each month that Congress delays repealing the outlawed subsidy.

In its place, Congress has come up with new tax breaks totaling more than $130 billion over 10 years. The biggest element of this package is a new tax deduction costing $76.5 billion over 10 years that is aimed at bolstering the country's beleaguered manufacturing sector, which has lost nearly 3 million jobs over the past four years.

However, the definition of manufacturing has been broadened to include not just traditional factories but also construction, engineering and architectural firms and even movie makers.

The bill would reinstate the deductibility of state sales taxes on federal income taxes, a provision that is popular in the seven states that do not have state income taxes.

Even with all the tax breaks, the bill is revenue neutral because it makes up the lost tax revenue by a series of proposals to close various corporate tax loopholes and tax shelters.

One member of the conference committee, Sen. Tom Harkin, D-Iowa, compared Thomas' decision to include the tobacco buyout while leaving out FDA regulation to an airplane that ``has lost a wing and you know what happens to airplanes who lose a wing. They spin and crash and that is what is going to happen to this.''

William V. Corr, executive director of the Campaign for Tobacco-Free Kids, said Thomas' version of the bill would ``provide billions of dollars to tobacco farmers and boost tobacco industry profits ... but do absolutely nothing to protect our children from the industry's predatory marketing practices or reduce tobacco's terrible toll in health, lives and money.''