Recently passed corporate tax reform bill

Author: Anchor Steve Inskeep, Reporter Kathleen Schalch

Published: October 13, 2004

STEVE INSKEEP, host:

President Bush is about to sign another tax bill into law. This one creates $136 billion in new tax breaks for businesses. Its backers say it will help struggling US manufacturers. Its critics say it will make the tax code even more complex than it already is and make the budget deficit even bigger than it already is. Here's NPR's Kathleen Schalch.

KATHLEEN SCHALCH reporting:

Congress had to do something. The US tax code ran afoul of global trading rules. Lawmakers had to scrap $5 billion in annual subsidies for American exporters and wanted to find some other way to give business a boost, but the bill took on a life of its own.

Ms. DOROTHY COLEMAN (Vice President, Tax Policy; National Association of Manufacturers): This is the largest business tax relief package in more than a decade.

SCHALCH: Dorothy Coleman is vice president for tax policy at the National Association of Manufacturers. She says the bill will cut domestic manufacturers' tax rate from 35 percent to 32 percent.

Ms. COLEMAN: The tax break for US manufacturers provides about $77 billion over 10 years, leaving them more money to invest and create jobs.

SCHALCH: Farmers will also benefit as will filmmakers, oil and gas companies, architects and engineers and others according to Keith Ashdown, policy director at Taxpayers for Common Sense.

Mr. KEITH ASHDOWN (Policy Director, Taxpayers for Common Sense): You have tax breaks for bow and arrows. You have tax breaks for foreigners who gamble on horses and dog races. You have tax breaks for ceiling fans. You have tax breaks for purchases of small corporate jets. If you have a lobbyist with a pulse, you got a break in this legislation.

SCHALCH: Critics, including Len Burman of the Urban Institute and the Tax Policy Center, say this may be good politics, but it makes for bad policy.

Mr. LEN BURMAN ( Urban Institute and the Tax Policy Center): They basically added special tax breaks and special provisions to buy votes from members one at a time, and the consequences, you've got hundreds of special provisions virtually all of which make the tax system more complicated and get the government more involved in terms of determining winners and losers.

SCHALCH: Even the bill's core provision, its lower rate for domestic manufacturers, is likely to send lawyers and accountants scrambling. Burman says Canada created a lower tax rate for its manufacturers and that prompted a wave of lawsuits including one filed by a Kentucky Fried Chicken restaurant in Nova Scotia.

Mr. BURMAN: That was able to successfully argue in court that its salad bar represented manufacturing activity and it got a deduction for that part of its profits. Canada is much less litigious than the United States. And the fact that in Canada, this actually precipitated an endless stream of litigation is a really bad sign for the US.

SCHALCH: Burman and other critics also worry about how much this tax bill is going to cost. Bob McIntyre is director of Citizens for Tax Justice.

Mr. BOB McINTYRE (Director, Citizens for Tax Justice): We're in a situation right now in this country where corporate taxes have fallen through the floor. They're down to their lowest level since World War II. And what does Congress do in order to address this problem? It passes a massive corporate tax cut bill. Now how do they pretend to pay for that? Well, they get $80 billion they say by sunsetting some of the provisions. They're supposed to go away after a few years. Well, we know from long experience that those sunsets will not be honored and that these tax breaks will continue.

SCHALCH: Iowa Republican Charles Grassley who shepherded the bill through the Senate defends it.

Senator CHARLES GRASSLEY (Republican, Iowa): For all of the unfair carping about this bill being a special interest bill, nearly every member raised narrow interest provisions. So if there's some fault about different provisions coming up, we all share that. We all do it.

SCHALCH: And few companies are grousing. Even non-manufacturing companies slated to pay the higher tax rates seem pleased.

Mr. BOB VASTINE (Coalition of Service Industries): The bill has a provision that is very much needed by a segment of the US financial services industry.

SCHALCH: Bob Vastine, president of the Coalition of Service Industries, says without it, companies that finance their plane leases would have taken a big hit. One provision was crossed out at the last minute. It would have created a blue-ribbon panel to look for ways to reform and simplify the tax code.

Kathleen Schalch, NPR News, Washington.