The Washington Post | By Juliet Eilperin | July 06, 2003
The need to rewrite tax laws for U.S. exporters has spawned a massive lobbying and legislative battle in Congress, with legislators and coalitions competing on how to promote exports without violating international statutes.
Lawmakers from both parties are scrambling to accommodate a World Trade Organization ruling on May 7 that said a longstanding $ 5 billion annual tax break for American exporters constitutes an unfair subsidy. Unless Congress acts quickly, the European Union threatens to slap the United States with a $ 4 billion annual penalty for the tax benefit, which is known as the "foreign sales corporation" provision or the "extraterritorial income exclusion."
U.S. corporations that manufacture products domestically and sell them overseas receive a federal tax benefit intended to promote exports and jobs. This has drawn complaints from companies that both build and sell their products abroad and domestically. They say they struggle to compete in overseas markets where many firms are subsidized by their home countries.
With the WTO declaring the tax benefit illegal, Congress is divided on how to promote American firms and exports.
A bill by Ways and Means Committee members Philip M. Crane (R-Ill.) and Charles B. Rangel (D-N.Y.) would take the current $ 5 billion tax benefit and use it to subsidize domestic manufacturers, whether they export or not.
But the committee chairman, Bill Thomas (R-Calif.), wants to simplify and expand tax breaks for U.S. companies operating overseas, saying it is in the nation's interest to make American-based multinational companies more competitive.
Unlike most fights in the House, this one does not split along party lines. U.S.-based exporters are lining up behind the Crane-Rangel bill. Firms with major operations abroad are siding with Thomas.
The Crane-Rangel bill would take the $ 5 billion in yearly tax benefits and apply it to reduce the corporate tax rate -- from 35 percent to 31.5 percent -- on domestic manufacturing. Thomas's plan, to be introduced later this month, would create multiple tax breaks for firms with divisions abroad.
The lobbying has intensified on all sides. Major domestic producers -- such as the Boeing Co., Microsoft Corp., Caterpillar Inc. and Motorola Inc. -- say they will have to slash jobs if they are not compensated for losing the annual subsidy. But firms with large overseas subsidiaries -- Texas Instruments Inc., ExxonMobil Corp. and Ford Motor Co., among others -- favor an international tax overhaul along the lines Thomas is suggesting.
Each of these companies alone represents a serious lobbying force. Boeing spent $ 4.6 million on lobbying last year, according to federal disclosure records, while Ford spent $ 2.8 million.
Both sides of the debate have created coalitions to help their cause, signing on lobbyists such as former Joint Committee on Taxation chief of staff Kenneth J. Kies and the Alexander Strategy Group, which has ties to House Majority Leader Tom DeLay (R-Tex.). The group backing Thomas's bill paid Kies's firm nearly $ 600,000 last year, according to federal records.
Domestic exporters are reminding lawmakers that they provide much-needed jobs in a sluggish economy. These companies have released a PriceWaterhouseCoopers study detailing how many jobs are at risk in every congressional district if the tax benefit disappears.
These estimates have made House members -- even those close to Thomas -- nervous. Rep. Jennifer Dunn (R-Wash.), whose district includes thousands of Boeing and Microsoft employees, said taking the current tax break away without compensating its beneficiaries could have devastating consequences.
"It's in effect raising taxes on two major companies in the Pacific Northwest," she said. "That's difficult for me."
Rep. Nancy L. Johnson (R-Conn.) is in a similar position. A major employer in her district, United Technologies Corp., is pushing for the Crane-Rangel bill. Johnson said the company has been "in constant contact for months" with her office. She said she has yet to decide which plan to support.
"This is going to be a long road," Johnson said. "We need to both meet Europe's objections and assure we will have a strong manufacturing base in the future."
Thomas also faces the challenge of satisfying House Speaker J. Dennis Hastert (R-Ill.), whose home state includes many of the companies opposing his bill. Hastert spokesman John Feehery said the speaker was working with Thomas on the matter, but he indicated the speaker prefers the Crane-Rangel approach for now. "He wants to make sure jobs don't leave the United States," Feehery said.
Hoping to win wavering lawmakers, Thomas has embarked on an elaborate horse trading effort. In exchange for their support, the chairman has promised to include a series of parochial tax breaks directed to their districts.
In an attempt to entice Johnson, for example, Thomas is including a research and experimentation tax credit she has championed, his staff said. He will incorporate Rep. Phil English's (R-Pa.) bill that would allow companies, for one year, to bring foreign earnings to the United States and pay 5.25 percent in taxes. And Thomas is entertaining a provision allowing restaurateurs to write off building expenses more quickly, a priority for committee member Mark Foley (R-Fla.).
Thomas is also including unrelated tax cuts to bring outside groups on board. His staff told one lobbyist, who asked not to be identified, that his clients could get the break they wanted in exchange for endorsing the bill. The lobbyist said some of his coalition's companies were happy to back the legislation, even though it had no connection to their industry.
"We're drowning, and he's offering to put us on a lifeboat that has cattle on it," the lobbyist said. "What do I care if there's cattle on the boat?"
If Thomas gets his way, Democrats will try to turn it against his party. Sen. John Edwards (D-N.C.) has invoked the issue on the campaign trail, saying Republicans are insensitive to the plight of American workers.
"We've lost 2 million manufacturing jobs across America, and it has devastated countless communities," Edwards said. "We need to use this opportunity to save manufacturing jobs. That's what Crane-Rangel does, and that's why it's the right approach."The Washington Post:
