Grassley Frets Over Tax Bill

Posted February 20, 2004 at 5:32pm

Senate Finance Chairman Chuck Grassley (R-Iowa) is worried about how his corporate tax bill will fare when it comes to the Senate floor either this week or next.

Beyond the usual concerns that Senate Democrats may try to add extraneous social policy amendments to a bill designed to avoid European trade sanctions, Grassley said his “biggest problem” will be his fellow Republicans — specifically Budget Chairman Don Nickles (Okla.) and Senate GOP Policy Committee Chairman Jon Kyl (Ariz.).

“I see them as a major obstacle,” Grassley said in an interview before the Presidents Day recess.

Grassley fears the Nickles-Kyl proposed amendment to give all corporations a tax break will gut his bill, which is targeted at alleviating the tax burden solely on manufacturing companies.

Given Nickles’ and Kyl’s stature as party leaders and influential members of the Finance panel, Grassley may be right to be concerned.

“When Don Nickles and Jon Kyl get behind something, you have to take it very seriously,” said one GOP Finance Committee aide.

Indeed, Nickles is hoping to use his sway with Senators to build support for the amendment, which he contends is the only sensible thing to do because Grassley’s measure would set up two different tax rates for manufacturers and other corporations.

“I’m working to convince a majority of our colleagues — Republican and Democrat — that the uniform rate is positive reform,” Nickles said.

Nickles also disputed the notion that his proposal would kill Grassley’s bill.

“I think it saves his bill,” Nickles said. “It just makes a lot more sense.”

At issue is what to do with an approximately $60 billion pot of money that the government would reap from repealing an export tax credit that U.S. manufacturers currently receive.

The World Trade Organization ruled in 2002 that the tax credit amounted to an illegal export subsidy and has authorized the European Union to impose trade sanctions worth $4 billion starting as early as next week — a deadline that has increased the urgency for passing the repeal.

Because repealing the export credit amounts to a tax increase for the nearly 1,800 manufacturers who currently benefit from the law, Grassley contends that tax cuts paid for by the repeal should be targeted to help those whose taxes will go up as a result.

“People get into trouble when they ignore the fact that the source of revenue for this is coming from exporting manufacturers,” said the GOP aide on the Finance panel. “If you do the Kyl-Nickles amendment, you’re raising taxes on manufacturers.”

Those manufacturers include behemoth corporations like Boeing, Microsoft, Caterpillar and General Electric — all of which have reaped billions of dollars from the export tax credit and stand to see their taxes rise no matter which proposal Congress goes with.

Nickles contends that targeting manufacturers will only make corporations with dubious manufacturing credentials try to pile onto the bill.

“What it will lead to if we don’t have [an across-the-board cut] is a lot of people trying to define themselves as manufacturers,” said Nickles, who noted that movie studios and some agricultural firms are listed as manufacturers under Grassley’s version.

“It just shows you how absurd this is,” he said.

Supporters of Grassley’s approach note that filmmakers and some agricultural cooperatives were already receiving the benefits of the export tax credit and that is why they should get the new tax break.

Under Grassley’s plan, manufacturers would see their tax burden drop about 10 percent. Nickles would use the same pot of money and reduce corporate tax rates by 6 percent or 7 percent, he said.

“All corporations would get a boost, but it would be insignificant in terms of bang for the buck,” Grassley said of the Nickles-Kyl plan.

Nickles acknowledged his plan would provide less tax relief, but again insisted it was the best approach.

“Frankly, the simplification is worth the differential,” Nickles said.

And it appears Nickles may have an ally in the White House, whose budget promotes the uniform corporate rate cut.

So far, however, corporations have not exactly been clamoring for the Nickles-Kyl amendment to pass, and some even are quietly opposing it.

“I don’t see them getting anywhere near 50 votes,” said a lobbyist for exporting manufacturers, who support Grassley because they will get the biggest tax break from his bill even though it still will not be as much as they got under the export credit.

Other lobbyists also played down the chances of Nickles and Kyl winning any votes.

“I don’t see anybody screaming for it or asking for it,” said one corporate lobbyist. “The assumption in the business community is that Nickles and Kyl won’t get it done. … Senator Grassley’s approach is fine, and he’s the chairman.”

But lobbyists generally agree that Grassley will have to find some way to mollify Nickles and Kyl, as well as other lawmakers who do not feel the bill goes far enough to help domestic manufacturers.

“He’s going to have to placate Nickles and Kyl,” said the corporate lobbyist. “The bill’s going to get bigger. … Grassley’s going to have to sweeten it up.”

Even though Grassley considers Nickles and Kyl the biggest threat to his bill, he said Senate Democrats could cause him some headaches as well.

“If the Democrats cooperate with us, then it’ll take two days [on the floor]. If they don’t, it might take a while,” Grassley said.

Grassley said he’s chiefly worried that Democrats might see his bill as a good opportunity to add nongermane proposals to increase the minimum wage or overturn Labor Department overtime regulations, among other things.

Indeed, Senate Minority Leader Tom Daschle (D-S.D.) is keeping open the option of using the corporate tax bill as a vehicle for those amendments, according to spokesman Todd Webster.

But Senate Majority Leader Bill Frist (R-Tenn.) plans to approach Daschle, who has expressed support for the bill, about coming to an agreement on a timeline for consideration of the measure, as well as what amendments may be offered.

Regardless of what happens on the Senate floor, the House version of the bill continues to be stymied thanks to a GOP revolt led by Rep. Don Manzullo (R-Ill.), who contends the bill approved by the Ways and Means Committee would not do enough to help small manufacturers.

Ways and Means Chairman Bill Thomas (R-Calif.) already bowed to pressure from within his committee to change his bill from one that would take the money generated by the export repeal and do a wholesale rewrite of international tax law to one that targets large manufacturers.

Senate GOP sources said Thomas has tried to deflect criticism that he isn’t moving fast enough in the face of the impending sanctions by sending out the message that companies are not in a rush to get the bill passed.

“There’s a spin coming out of the Ways and Means Committee that this is not needed immediately,” said the GOP Finance aide. “Playing with sanctions is playing with fire.”

The lobbyist for exporting manufacturers agreed: “Our clients would rather have the certainty of knowing what the future tax policy is — sooner rather than later.”

Thomas spokeswoman Christin Tinsworth disputed the claim that Thomas was not moving quickly.

“Maybe we’ve made the observation that we’re not hearing from [companies], but we’re not saying it shouldn’t be done.”

The measure does not appear to be coming to the House floor anytime soon. However, lobbyists predict all it will take is for one or two companies to get hit by the sanctions for the political impetus to push House negotiations forward.

“Once somebody howls and says, ‘I just got whacked,’ then it’ll get done,” said the corporate lobbyist.