[IP] Tax Legislation Worthy Only of The Trash Heap
Begin forwarded message:
From: Ralph Sierra <ralph.sierra@xxxxxxxxx>
Date: June 9, 2004 12:55:21 PM EDT
To: Dave Farber <dave@xxxxxxxxxx>
Subject: Tax Legislation Worthy Only of The Trash Heap
Professor Farber,
Something from today's Wednesday's Washington Post that would be of
interest
to everyone:
http://www.washingtonpost.com/wp-dyn/articles/A26657-2004Jun8.html
By Steven Pearlstein
Wednesday, June 9, 2004; Page E01
If Republicans really want to honor the memory of Ronald Reagan, they
should
toss in the trash the corporate tax legislation making its way through
Congress.
One of Reagan's greatest achievements was passage, with bipartisan
support,
of the 1986 Tax Reform Act. The goal of the landmark bill was to make
the
tax code simpler and fairer while boosting economic efficiency.
Loopholes
were closed, tax rates were reduced, and all sorts of distinctions were
eliminated so that individuals and companies with the same income or
profits
were required to pay roughly the same tax.
Those principles, however, are violated on nearly every one of the 930
pages
in the recently passed Senate tax bill and the 398-page draft released
last
week by the chairman of the House Ways and Means Committee, Bill Thomas
(R-Calif.).
With a few exceptions, both bills are grab bags of special-interest
provisions designed to reward the well-connected at everyone else's
expense.
They reward companies that have played cynical tax games and open up new
vistas for the tax shelter industry. And while claiming that the
purpose of
the exercise was to create jobs in the United States, they will only
enhance
existing incentives for U.S. companies to earn their profits overseas.
Worse still, they are almost certain to add billions each year to a
federal
deficit that is already too high.
Let's begin with those provisions designed to favor particular
companies or
industries. In the Senate bill, these include cruise-ship operators,
foreign
gamblers, NASCAR track owners, insurers, timber companies, cattle
ranchers,
movie theater owners, and manufacturers of small planes, bow-and-arrow
sets
and fishing tackle boxes. And notwithstanding the fact that
skyrocketing oil
prices should provide all the incentive anyone would need to develop new
energy sources, there's a couple of billion dollars a year in new tax
breaks
for energy companies already well-endowed with them. In a final,
gratuitous
insult to the taxpayer, there's even a provision for a blue-ribbon
commission to study "comprehensive tax reform."
The House would leave out the energy provisions but add tax breaks for
bourbon distillers and wealthy taxpayers in places like Texas that, poor
things, have no state income tax to deduct on their federal 1040.
High-tech
industry tucked in a provision that would ensure its employees pay no
payroll taxes on all those stock options. And in a shameless vote-buying
effort, Thomas's draft would have the government pay $2 billion a year
to
tobacco farmers for the right NOT to pay them annual crop subsidies in
the
future, as if the quotas were some sort of property right.
The original reason for embarking on this legislative escapade was to
eliminate a $5-billion-a-year tax break for U.S. exporters ruled illegal
under world trade rules. But to "compensate" large corporations for
their
lost subsidies, both versions of the legislation propose reducing the
corporate income tax rate by 10 percent for any company engaged in
manufacturing -- which, if you read the fine print, turns out to include
movie studios, farmers and software programmers, along with any "small
business" that makes less than $20 million in annual profit.
And if all that weren't enough, there are the dozen provisions that
would
magically turn passive income into active, permit more-liberal use of
foreign tax credits, allow companies to shift profits from one foreign
country to another and grant a tax holiday for billions of profits
parked
overseas. In aggregate, these will boost after-tax profits at least $5
billion a year and give every company fresh incentive to locate
operations
anywhere other than the U.S. of A. To call this the "American Jobs
Creation
Act of 2004" is nothing short of political and economic fraud.
This may well be the worst piece of tax legislation to come along since
1986. If Sen. John F. Kerry (D-Mass.) wanted to steal the Reagan
mantle, he
would make plans now to return to Washington from the campaign trail
and,
Jimmy Stewart-like, lead a protracted Senate filibuster of the final
bill.
From his final resting place, the Gipper would be cheering him on.
Steven Pearlstein can be reached at pearlsteins@xxxxxxxxxxxxx
© 2004 The Washington Post Company
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