The House and Senate have passed and sent to the president a $137-billion corporate tax bill that includes tax breaks for everybody from ethanol producers to NASCAR racetracks to Hollywood movie studios.
The FSC/ETI bill, also referred to as the JOBS bill, began as an effort to address an unfavorable WTO ruling in an export tax incentive case brought by the European Union. But it blossomed into a grab bag of tax breaks for corporate America, according to critics of the legislation.
On the plus side, the bill does provide tax incentives for farmer-owned cooperatives that produce ethanol and extends a previous tax credit for ethanol production. It also provides a new tax credit of $1 per gallon for agri-biodiesel and 50 cents per gallon for biodiesel (recycled oil).
But critics complained Congress went out of its way to provide something for practically every category of business in the United States just ahead of the Nov. 2 elections.
“It (the bill) is the worst example of the influence of special interest groups I have ever seen,” said Sen. John McCain, R-Ariz. It was “a classic example of the special interests prevailing over the people's interests.”
One of the bill's loudest defenders, ironically, was Sen. Charles Grassley, R-Iowa, a frequent critic of farm program payments to producers. Grassley said the bill was needed to resolve the trade dispute with the WTO and to help American manufacturers become more competitive.
“Those who want to distort this bill by describing it as a special-interest bill are ignoring a couple of things,” said Grassley, chairman of the Senate Finance Committee. “They are ignoring, perhaps conveniently, perhaps deliberately, their own efforts to advance their own interests.”
The measure drew applause from the American Farm Bureau Federation, the National Corn Growers Association, the American Soybean Association and other farm organizations.
“This legislation is important to farmers and ranchers for both the provisions it provides and the policy it corrects,” said Bob Stallman, a farmer from Texas and AFBF president.
“The JOBS Act includes incentives to support the production of renewable, domestic fuels, such as ethanol and biodiesel. The measure will also put a stop to escalating sanctions being levied by the European Union, which could have cost U.S. agriculture as much as $150 million in lost sales over the year ending in March.”
The bill, which passed the Senate by a 69-to-17 vote on Oct. 11 and the House by a vote of 280 to 141 a few days earlier, provides more than $20 billion in tax reductions on the profits of multinational corporations. Among the recipients would be technology companies such as Oracle and Hewlett-Packard, which would be allowed to pay taxes on foreign profits at about one-seventh the previous rate.
General Electric reportedly would save as much as $8 billion in taxes on its foreign operations over the next 10 years, according to Democrats on the House Ways and Means Committee. Rep. Bill Thomas, R-Calif., chairman of the committee, wrote much of the legislation.
Analysts said the bill also includes tax breaks for makers of bows and arrows, operators of NASCAR racetracks and importers of ceiling fans, among others.
The bill repeals the extra-territorial initiative tax credit that was ruled illegal by a World Trade Organization panel. The ETI tax credit was enacted to replace the FSC credit, which was also ruled illegal in the WTO.
The $50 billion FSC/ETI tax credit reportedly benefited only a small number of companies that included Caterpillar Inc., Boeing Co. and Microsoft along with some agricultural exporters. It reduced or eliminated the tax that companies had to pay on export income.
After finding that the subsidy gave U.S. exporters an unfair advantage in international trade, the World Trade Organization panel said the European Union could impose as much as $4 billion in punitive tariffs on U.S. goods shipped to the EU.
Those tariffs, which began to be applied at 5 percent to 1,600 American products last March, could be increased by 1 percent per month by the EU until the United States changed the law. The tariffs reached 12 percent in October.
The legislation will now replace the FSC/ETI subsidy with an across-the-board $77-billion corporate tax cut for manufacturers and a $43-billion reduction for companies with overseas operations.
The $77 billion is supposedly for domestic manufacturing operations, but critics complain that the provision could actually result in more jobs being moved offshore.
“The last time we checked, the definition of domestic manufacturing in the House Ways and Means Committee version of this bill was that it only had to contain 50 percent U.S. content,” an analyst for the U.S. textile industry said.