Copyright 1999 The Washington Post
The Washington
Post
View Related Topics
July 14, 1999, Wednesday, Final Edition
SECTION: A SECTION; Pg. A21; THE FEDERAL PAGE
LENGTH: 1110 words
HEADLINE:
Tax Bill's Breaks Out in the Open; Broad Legislation Benefits Companies Large
and Small
BYLINE: Dan Morgan, Washington Post Staff
Writer
BODY:
In years past, breaks for
corporations have often been hidden in the fine print of major tax legislation
to avoid easy detection, like candy at an Easter egg hunt.
That wasn't
the way House Ways and Means Committee Chairman Bill Archer (R-Tex.) did it
yesterday when he unveiled a far-reaching tax measure that boldly--and
unabashedly--allocates billions of dollars of tax savings to defense
contractors, multinational banks, steel companies, oil and gas developers,
insurance companies and timber giants over the next 10 years.
Just about
everything, from the proposed repeal of the excise tax on fishing tackle boxes
to a provision putting weapons manufacturers on the same tax footing as other
exporters, is right out in the open in the bill, which is more than 500 pages
long.
One whole title of the bill is devoted to providing relief to U.S.
multinational companies competing on the often-bumpy playing field of the global
economy. A single provision, which will enable American multinationals to
increase the foreign tax credits they take on their U.S. tax returns--through a
complicated reallocation of their interest deductions--would cost the Treasury
an estimated $ 25 billion in lost revenue over 10 years.
"In terms of
corporate tax relief, the vein of gold is in the international provisions," said
Lawrence O'Brien of the Washington lobby shop O'Brien Calio.
The
National Foreign Trade Council, which represents hundreds of multinationals,
lobbied hard for the foreign tax credit provision. Also shepherding it was Price
Waterhouse lobbyist Kenneth Kies, a longtime Archer confidant who served as
chief of staff of the Joint Committee on Taxation until early 1998.
Kies
said a number of Price Waterhouse clients, including General Motors Corp.,
sought the provision. "This bill moves in the direction of parity [with foreign
countries] in the way we treat multinational companies," said Kies.
He
predicted that there would be considerable Democratic support for efforts to
reshape tax laws to keep U.S.-based global companies from moving their
headquarters to more favorable tax climates abroad.
But the bill also
includes a provision that President Clinton once vetoed. It would extend for
five years the ability of U.S. banks, insurance companies and securities firms
to defer paying taxes on profits from foreign sales until those profits are
brought home.
Clinton used his newly acquired line-item veto authority
to strike that concession from a 1997 tax bill. But after the Supreme Court
ruled the line-item veto unconstitutional, a revised version of the provision
was reinstated.
Treasury officials have argued against treating
financial services companies in the same way as manufacturers because of the
special ease with which they can move money between countries to exploit tax
loopholes and advantages.
But extending the provision would save the
industry about $ 1 billion a year in taxes, according to congressional
estimates.
Defense industry lobbyists were jubilant yesterday that
Archer's bill would allow military equipment exporters to exclude 15 percent of
their income from taxation--the same as nondefense exporters.
Congress
in 1976 reduced the exemption to half of what other exporters got, on the
grounds that defense exports at the time were already heavily subsidized by the
U.S. government.
But a "Coalition for Fairness in Defense Exports," made
up of 12 industry groups, along with major defense contractors, argues that
European, Russian and Asian competitors now have an advantage.
Northrop
Grumman Corp. and Lockheed Martin Corp. lobbied actively for the change, sources
said. But some defense companies reportedly are worried that the provision could
escalate a dispute with the European Community, which recently filed a complaint
with the World Trade Organization over the 15 percent U.S. exclusion.
"It's a gargantuan bill, but what you see is what you get," said
O'Brien, a former Treasury official in the Carter administration. "They touched
a lot of thematic issues here in terms of a Republican tax agenda."
That
included gestures toward multinational companies and small businesses--both
central to GOP fund-raising and election support.
The easing of estate
taxes--a key reform in the Archer bill--has long been a major goal of the
National Federation of Independent Businesses, a valued GOP constituency. At the
same time, several sources noted, the Archer bill does not extend the tax credit
for the development of wind and biomass power production--alternative energy
sources with a constituency in the environmental movement and the Democratic
Party.
Highlights of House GOP Tax Plan
Price tag: $ 864 billion
over 10 years
Income tax reduction: A 10% across-the-board reduction in
tax rates, phased in over 10 years. The 15%, 28%, 31%, 36% and 39.6% rates would
be reduced to 13.5%, 25.2%, 27.9%, 32.4% and 35.64%, respectively.
Marriage tax penalty relief: 42 million married taxpayers would gain
from doubling the standard deduction for joint returns. The average benefit
would be about $ 243 per year.
Capital gains: Effective July 1, 1999,
the maximum capital gains tax rate would drop from 20% to 15% on net capital
gains from property held more than one year. For taxpayers in the 15% income tax
bracket, the rate would drop from 10% to 7.5%.
Estate tax: Death taxes,
with rates as high as 55%, would be phased out over 10 years.
Education
tax relief: Allows tax-free expenditures from Education Savings Accounts for
public and private elementary and secondary school tuition and expenses, as well
as to cover higher education costs. Private colleges and universities for the
first time could join state universities in offering pre-paid tuition assistance
plans.
Health care and long-term care relief: Individuals who purchase
health or long-term care insurance would be able to fully deduct premiums. The
deductions will be phased in over 10 years. The plan provides taxpayers caring
for elderly family members at home with an additional personal exemption.
Pension reforms: Increases contribution limits for so-called defined
contribution and benefit plans and increases pension portability so employees
changing jobs may roll over plans.
Savings and investments: Small-savers
exclusion so that the first $ 200 (for singles) or $ 400 (joint filers) in
interest earned on savings is not taxed.
Other measures: Phase out
corporate and individual alternative minimum tax; breaks for small businesses
and "distressed" industries; and extension of several expiring tax credits.
SOURCE: House Ways and Means Committee
GRAPHIC: Chart, The Washington Post
LOAD-DATE: July 14, 1999 
