Mindfully.org  

Home | Air | Energy | Farm | Food | Genetic Engineering | Health | Industry | Nuclear | Pesticides | Plastic
Political | Sustainability | Technology | Water
PCE contamination


Bush's $1.6 Trillion Tax Plan Could Spur Bidding War Among Corporate Lobbyists

JACOB M. SCHLESINGER and JOHN D. MCKINNON / WALL STREET JOURNAL 2feb01

WASHINGTON -- Next week, George W. Bush will unveil a $1.6 trillion tax plan that provides generous, across-the-board tax cuts for individuals but little direct relief for corporations.

Then the bill goes to Congress, and the corporate lobbyists go to work. For them, the time couldn't be more ripe, with a business-friendly administration in place, the economy slowing, a flood of corporate cash to last year's campaigns -- and a growing federal surplus to be parceled out.

"When you put $1 trillion on the table, companies are going to come out of the woodwork," says Buck Chapoton, a prominent Washington tax attorney.

Yet the lobbyists face unusual hurdles as well. Mr. Bush, to date at least, has resisted expanding his tax cuts to satisfy big business. He finds some support for that reluctance among those who fear a repeat of the deficits that followed such moves by former President Reagan. Also hurting big business is its inability so far to form a united front in its lobbying campaign.

A Share of the Goodies

None of those issues has blunted the lobbyists' appetite for a share of this year's tax goodies. Already, the early stirrings of a special-interest feeding frenzy can be heard in Washington.

A new coalition called the Cost Recovery Action Group, with members ranging from New Economy leader Intel Corp. to Old Economy icon USX Corp., has launched an effort to win faster tax write-offs for computers and business equipment.

The National Federation of Independent Business, longtime advocate for small and midsize businesses, has already persuaded Missouri Republican Sen. Kit Bond to introduce the "Small Business Works Act," a laundry list of breaks such as increasing deductibility for self-employed health insurance and business meals.

Greasing the Big Wheels

source: Center for Responsive Politics

And the Electronic Industries Alliance is gearing up for meetings with every freshman legislator and key committee chairmen on tax credits to expand broadband Internet networks. It has invited three members of the Senate Finance Committee to attend a conference on the topic next month in Palm Beach, Fla.

Mark Bloomfield, who has been a relentless advocate of corporate tax breaks in Washington for more than two decades, worries about the danger of too many conflicting agendas. He heads a group called the American Council for Capital Formation that is trying to organize an alliance including chemical manufacturers, paper makers and securities firms. The group hopes to lobby for broad-based cuts in the corporate tax.

"If the business community is balkanized, it's neutered," warns Mr. Bloomfield.

The steadily growing ranks of business lobbyists won't say whether they want their tax cuts to be added to those in Mr. Bush's plan, or substituted for them. But they are determined, one way or another, to get a bigger share.

"Maybe only a tenth" of the Bush plan "is targeted to the business community," estimates Dorothy Coleman, vice president of tax policy for the National Association of Manufacturers, which is assembling its own coalition of business groups seeking tax relief. "We think that needs to be at least a quarter to a third," she adds.

Fear of Deficits

The big fear among economists and fiscal disciplinarians is that, just as the 1981 tax act helped usher in an era of budget deficits, an ever-swelling 2001 cut could wipe out the current surpluses.

Mr. Chapoton was the Treasury's top tax official back in 1981, when Ronald Reagan first took office. Like President Bush, Mr. Reagan ran on a platform calling primarily for across-the-board tax cuts for individuals. But Charls E. Walker, founder of Mr. Bloomfield's American Council for Capital Formation, persuaded him to add in generous depreciation allowances for business. When the Reagan White House later considered cutting back the allowances, backers of them orchestrated an event that became known among Reagan officials and tax lobbyists as "Learjet Weekend," with corporate chieftains flying in from across the country to preserve their piece of the tax-cut pie.

"The business community has a lot of clout and they will be the engine that moves this bill" proposed by Mr. Bush, says Bob Matsui, a California Democrat and veteran of the House Ways and Means Committee. The result could be a bidding war, as each of the competing interest groups tries to get its own break and their congressional allies try to outdo each other to please their constituencies.

"It's a parade of people, calling, coming over, saying we need more -- more spending, more tax cuts," says Democratic North Dakota Sen. Kent Conrad. "It's as though people have completely forgotten what got us in the deficit in the first place."

Mr. Matsui says the total cost of the bill over 10 years, in terms of lost tax revenue and higher interest costs because of the increase in federal debt, could be as much as $2.7 trillion.

So far, Mr. Bush has resisted corporate pressure. Aides say his bill already has something for companies. He is offering big business a permanent extension of the temporary research-and-development credit. And he argues that the cut in the top tax rate for individuals and his proposed repeal of the estate tax will help the small businessmen, who are his principal concern.

As for the rest, Mr. Bush's economic adviser Lawrence Lindsey says: "The president is willing to take the heat for resisting special-interest pressure. He resisted it during the campaign, and I believe he'll resist it as well as the legislation is put together."

Mr. Bush will also have to consider that many of those business interests lobbying for big tax breaks underwrote his campaign, as well as campaigns in the Congress he pledges to work with. Each of the Big Five accounting firms -- the primary tax lobbyists in Washington -- was among his top 20 corporate donors. Real-estate interests gave $4.2 million to the Bush campaign, and a further $4.3 million to members of the House Ways and Means and Senate Finance committees during the past election cycle, according to the Center for Responsive Politics. In the past few weeks, the National Realty Committee has made the rounds of those two committees with struggling office-building owners from the politicians' own districts to make the case for faster property depreciation.

Insurance companies and executives also poured $1.6 million into the Bush campaign, and $5.7 million in contributions to Ways and Means and Finance. Last week, a Republican and a Democratic member of Ways and Means jointly signed a letter to colleagues pressing a $645 million provision that would help life insurers compete better with other financial-services companies.

Besides, while Mr. Bush hasn't made business tax cuts a priority, he and his aides have hardly shown that they oppose the concept in principle. As governor of Texas, Mr. Bush backed breaks for the then-struggling oil and gas industry. His Treasury secretary, Paul O'Neill, used to sit on Mr. Bloomfield's and Mr. Walker's board, and he is an outspoken opponent of corporate taxes in general. The man tapped to be Mr. O'Neill's top tax aide, Mark Weinberger, has himself been a corporate tax lobbyist.

Next week's White House tax blueprint will only be the first step in what Mr. Bloomfield terms "a marathon -- that's the metaphor for the tax process this year."

Nobody knows how that process works better than Mr. Bloomfield. An avid long-distance runner, his fourth-floor office on K Street -- a street famous for the many lobbyists based there -- mixes pictures of him running real marathons with mementos of his 25-year quest for lower business taxes as ACCF leader. Two letters from the new president's father, thanking Mr. Bloomfield for his efforts on taxes, adorn opposite sides of the room.

On a bookcase stands the thick black binder that Messrs. Bloomfield and Walker helped prepare in early 1981 as head of the group advising Mr. Reagan's transition team on taxes. "The question," he says pensively, sipping a Diet 7Up, "is whether this year follows that script."

To help make sure it does, Mr. Walker started sending feelers in December from his Georgia winter home to key tax lobbyists to plot strategy. "The minute the verdict was in, the phone calls started getting made," says chemical-industry lobbyist Fred Webber, referring to the Supreme Court decision sealing Mr. Bush's election victory. "Bush said in his campaign he was going to cut taxes and Charly wanted to see if there was interest in developing a common position that would appeal to most of the business community," adds Mr. Webber, president of the American Chemistry Council.

The guiding philosophy of that effort is that big business has to unify around one or two big cuts to get the largest possible share. One goal that the trade groups are discussing is a reduction in the current corporate income-tax rate of 35%.

But unity among disparate corporate interests is so far proving harder than business leaders would like. The National Association of Manufacturers, too, would like to come up with a consensus tax package among nearly two dozen business organizations. But its two lengthy meetings on the subject last month -- one lasting nearly three hours -- ended up producing only a laundry list of conflicting desires by different industries. Companies facing lousy earnings years, for example, might have less interest in corporate income-tax reduction than a break from the alternative minimum tax, which can force firms to pay high taxes even during down years.

Veteran tax lobbyist Ernest Christian, who allied with Messrs. Bloomfield and Walker on the 1981 tax act, is going his own way this year with a high-tech break aimed mainly at manufacturers.

In numerous meetings recently in the marble-columned dining room of the Metropolitan Club near the White House, he has been hammering together a powerful coalition of computer giants and heavy-industry types to further speed up the depreciation system he promoted successfully 20 years ago -- at a cost of $300 billion during the next decade.

Updating his pitch for the 21st century, Mr. Christian says this change is essential to maintain the high-tech investment that has helped propel the New Economy. It would allow businesses to deduct the full cost of high-tech equipment -- generally anything with a computer chip in it -- in the first year, instead of doling out the deduction over a period of years under the current system.

Mr. Christian says the current system breeds confusion and penalizes companies that have to replace high-tech equipment frequently. The changes would simplify the system somewhat and encourage businesses to invest more in equipment that helps boost productivity, Mr. Christian believes.

"I wrote the existing depreciation laws, and they're bad," Mr. Christian says. "This is the turn of the century. Let's do something sensible and modern."

Meanwhile, there is what many lobbyists call "pent-up demand" from companies and industries that succeeded in pushing at least partway through Congress specific breaks over the past two years -- only to have the bills die when it became clear that the Clinton White House wouldn't back them.

Chief among those is a proposal costing as much as $400 billion that would expand tax-advantaged individual retirement accounts and 401(k) plans by inducing more employers to offer them, and by lifting contribution limits. "That's our one, blinding-sun issue," says Steve Bartlett, president of the Financial Services Roundtable, who blanketed Capitol Hill with letters two weeks ago urging representatives to back the bill once again.

Tax lobbyist Ken Kies of PricewaterhouseCoopers -- a former staff chief of Congress's joint tax committee -- is working on behalf of General Electric Co., Caterpillar Inc. and other multinationals to revise the way their foreign operations are taxed at a possible cost of $30 billion. Mr. Kies contends the current U.S. laws in the area are helping drive relocations of U.S. headquarters overseas.

Some companies are even dissatisfied with Mr. Bush's main gesture to big business, the R&D extension, and are hoping to sweeten that provision as well. "The current structure of the credit means we just don't get very much," says Stephen Elkins, head of tax policy for the chemical companies' trade group. The problem, as he sees it, is that credit is given to companies who increase R&D -- mainly high-tech firms -- and doesn't help much for Old Economy concerns like his clients, whose research budgets stay relatively flat. "We're not objecting to a permanent credit, we just want one where we get some meaningful part of the benefits that are available."

Last year, the American Forest and Paper Association succeeded in inserting, in an unsuccessful bill to raise the minimum wage, a special break for forest owners that would allow them to write off all reforestation expenses in seven years, as opposed to the current timetable of 30 to 40 years. Former GOP Congressman Henson Moore, a Ways and Means veteran who heads the group, is torn on whether to push again this year. He was one of the first people Messrs. Bloomfield and Walker reached out to for their broad-based coalition.

"We're trying to avoid every industry running down there with tweaks and changes to the tax code. We have to try not to load up the bill like a Christmas tree or it will collapse," he says. On the other hand, he adds: "If we can't get broad agreement, we'll go our own way. That's what's going to happen with everybody."

-- Tom Hamburger contributed to this article

If you have come to this page from an outside location click here to get back to mindfully.org