Senate Passes Corporate Tax Bill

RAY SUAREZ:

It all started two years ago around a narrow trade dispute with the European Union. But the bill passed by the House, and today, the Senate, grew into a sweeping $136 billion package, one that adds up to the biggest overhaul of corporate tax law in two decades.

Among its highlights:

$76.5 billion in new tax relief for American manufacturers, broadly defined to include not just factories, but also oil and gas producers, architectural firms, and large farming operations, among others; a $10.1 billion buyout for tobacco farmers; $42.6 billion in tax relief to multinational companies bringing profits back to the U.S.; smaller provisions include new tax write-offs for NASCAR track owners, Oldsmobile dealers, and the recreational fishing industry.

Joining me now to explain this bill and how it evolved is veteran Congress watcher Norman Ornstein of the American Enterprise Institute.

Well, what was the original reason to have to craft this bill?

NORMAN ORNSTEIN:

We had had subsidies going to manufacturers for exports abroad that were viewed by the World Trade Organization as illegal subsidies for trade purposes.

And it resulted in a ruling that meant a retaliation -- very high tariffs against our goods that were moving up to 12 percent.

So there was a very strong push on the part of the industry. It meant higher prices for Americans and also problems for manufacturers to deal with this in a different way.

Now you can provide subsidies through tax breaks and tax credits that you can't do through a direct subsidy. We were giving these $5 billion a year. There's been a push for two years to do something about this.

Congress dawdled until right at the end when there was this tremendous push to get it done.

RAY SUAREZ:

Okay. So we have a bill that's meant to pull the United States in line with a WTO ruling. How did it end up studded with all these other items?

NORMAN ORNSTEIN:

It's a very simple thing to do actually, simply to substitute a tax credit or a reduction in corporate tax rates for the purpose of making this work, but what we had here is a classic.

There are very few trains that leave the legislative station that actually go and reach a destination. This one we knew in the end was going to make it.

And so everybody in Congress and outside groups wanted to throw their baggage on the train so it could get to the other end.

It ended up being something that could have been done in a dozen pages in the tax code that was 633 pages with almost 300 separate provisions.

RAY SUAREZ:

So here's a bill that erases a government program that was costing around $50 billion a year.

Now that they've added all these other things to it, was it... is it a wash? Did we break even on the deal, the United States?

NORMAN ORNSTEIN:

Well, it depends on who you ask, Ray. It's now up to $136 billion in tax breaks plus the $10 billion buyout for tobacco farmers, which as originally designed in a fairly delicate compromise between anti-smoking interests and some of the tobacco industry was supposed to be a trade-off.

We will help tobacco farmers get out of the business, and we will have the federal Food and Drug Administration regulate the tobacco industry. That was thrown aside. It's now $146 billion. We've got $50 billion that comes from the subsidy removal.

The rest of it comes from what is supposed to be a series of loophole closings for the corporate sector in a variety of ways.

The chairman of the Senate Finance Committee, Charles Grassley, was on the floor of the Senate assuring everybody that this would be a wash. Frankly, past experience suggests that the revenues brought in rarely match up with the revenues lost so it's probably another drain on revenues.

And Treasury Secretary John Snow, before this bill passed, raised that concern as has John McCain and a number of other members of Congress.

RAY SUAREZ:

Well does the fact that this was considered a must-pass piece of legislation make it easier to start putting these trailers on it as it rolls forward?

NORMAN ORNSTEIN:

There's just no question that everybody has an incentive to add these trailers but when you have some areas of controversy -- and what we had here was another instance where the House Republicans in the majority had some very different ideas than the Senate Republicans -- they took some things out that caused a lot of controversy.

And that's why this bill, which was supposed to be passed on Saturday actually was actually passed in a very unusual holiday session today after an even more unusual Sunday session yesterday. It was held up, but by giving something for just about everybody, in the end they were able to get an almost 2-1 victory in the Senate... and a larger vote in the House.

So you've got a lot of extraneous provisions and smaller special interest provisions added in.

And what was supposed to be an equal break for manufacturers has now expanded to a reduction in the tax rates for all kinds of companies that are by no stretch of the imagination manufacturers.

RAY SUAREZ:

Well, what... moving from economics to politics. What were some of the items that caused this hold-up? Who was it that was putting the brakes on the passage?

NORMAN ORNSTEIN:

Well, for the last two days it was Sen. Mary Landrieu of Louisiana.

One of the things that was added into this original bill was a tax credit for businesses that gave full salary to people in the National Guard and the reserves who were kept overseas in Iraq and Afghanistan for a period of time.

That was taken out partly because of a concern that it would be unequal treatment for those people compared to those in the regular forces.

But, of course, people who are in the National Guard and the reserves sent overseas for long periods of time are now not treated very well. Mary Landrieu was very upset with this, couldn't hold up the entire bill to keep it from passage, and in the end had to settle for simply a symbolic vote that this would be taken up at a later point.

There was another area which involves hurricane relief for farmers in Florida. And this ended up being paid for by taking money out of another very popular farm program for conservation. Sen. Tom Harkin didn't like that.

He lost but also got another symbolic vote. So you had some people who were very uneasy, a lot more uneasy about the tobacco provisions, thought it was a bait-and-switch kind of thing to get them to go along.

But in the end because this had to be done, because you had so many other breaks in there for people it was going to pass over the objections.

RAY SUAREZ:

Well, are there places where there are tough or tight races, where one party or another hoped to make gains, that the items in this new tax bill might actually change the political landscape for the next couple of weeks?

NORMAN ORNSTEIN:

We have a lot of tight Senate races out there. Just to pick one example, the tobacco buyout is an extraordinarily significant provision in North Carolina where there's an open Senate contest but Republican Richard Burr who is running a little bit behind the Democrat Erskine Bowles can now go back and say see we've done something for the tobacco farmers.

The breaks which you mentioned earlier on for the recreational fishing industry which includes a removal or reduction of excise taxes for fishing tackle and sonar and the like probably will make some difference or could at least in the Alaska Senate race where Lisa Murkowski is facing a very tough battle, another Republican against former Governor Tony Knolls.

So these are not just breaks going to people who have sure re-election battles. There are some very conscious decisions made to give a little boost to some of those in tight races.

RAY SUAREZ:

And are there any particular corporations that are going to come out way ahead as a result of this bill?

NORMAN ORNSTEIN:

Well, there are a lot of companies that do particularly well here.

And among them are multinational companies that have kept their profits abroad who can now bring some of them back to the United States and get a tax holiday in effect that keeps them from being taxed at a higher rate.

RAY SUAREZ:

Norm Ornstein, thanks for coming by.

NORMAN ORNSTEIN:

Sure, Ray, thank you.