Tax

Congress Starts to Work on Business Tax Breaks

With scant money left for business tax cuts, Congress is scouring for other ways to pay for them -- including business tax increases.
CFO.com StaffJuly 2, 2001

With scant money left for business tax cuts, Congress is scouring for other ways to pay for them — including business tax increases, reports the Wall Street Journal.

Republicans want to attach as much as $30 billion in business- related tax breaks over 10 years to the minimum-wage bill, which is expected to begin moving in July. Congress also hopes to extend expiring tax credits, provide incentives for health coverage and energy investments, add charitable-giving provisions and reduce capital-gains taxes, the newspaper reports.

But there isn’t any room left in the budget. Hence the search for “offsets,” says the Journal. Common targets are tax shelters, taxes on insurance and financial products and obscure business deductions. The first revenue-raising measures could appear on the minimum-wage bill in the Senate.

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In his final budget, President Clinton included some 90 steps to raise about $180 billion over 10 years, and Congress’s Joint Tax Committee has periodically urged higher penalties and other steps to raise revenue. Those lists are now road maps for both Republicans and Democrats, says the Journal.

Democratic Rep. Lloyd Doggett of Texas, a Ways and Means Committee member, has included some of Clinton’s ideas in a bill that targets tax shelters. A Doggett spokeswoman said the plan would raise about $12 billion. Others talk of imposing an “exit tax” on Americans who renounce their citizenship and become citizens of other countries in an effort to evade taxes, the paper reports.

Some tax-policy analysts are skeptical. One told the Journal, “These things always sound better in the abstract.”

Another approach is to target budget allocations that haven’t been spent yet, such as the $28 billion set aside for expanding health coverage, says the Journal. Republicans are looking at that as a way to fund tax breaks that would encourage people to buy health insurance or to pay for small-business provisions on the minimum-wage bill.

Some lawmakers are even considering halting action on legislation to cut fees on securities transactions by $14 billion over 10 years. The Senate and the House have passed different bills, and supporters, including some Wall Street firms, are pressuring Senate Majority Leader Tom Daschle, a South Dakota Democrat, to adopt the House bill to quickly enact the fee cuts, the paper says.

Already, lawmakers have found $7 billion by extending a U.S. Customs Service user fee. They are also weighing possible offsets for the minimum-wage tax breaks, says the Journal.

Republicans usually shun offsets, but these days they are torn, according to the Journal. They promised rewards to business supporters for not trying to climb aboard President Bush’s 10-year, $1.35 trillion tax package, which mainly helps individuals. But the cuts depleted the non-Medicare and Social Security surplus, and bigger-than-expected health, energy or military investments could drain it further. Meanwhile, revised revenue projections are expected later this summer, and they could be grim.

Already, GOP budget analysts in Congress last week were projecting that the sluggish economy could lop $20 billion or so from the projected $63 billion surplus for 2002. Given the pressure for new spending, that would push lawmakers “perilously close” to erasing the surplus and dipping into Medicare money, Senate Budget Committee Director William Hoagland told the Journal.

And White House officials on Friday conceded that the economy’s poor performance in fiscal 2001 could shave tens of billions off the 2001 surplus, raising the possibility that the government will technically be spending Medicare surplus money this year.

Business lobbyists acknowledge they are in a tough position. They want tax cuts, but not at any costs. One priority is the repeal of the corporate alternative minimum tax, which companies are hitting as their profits decline. But repeal would cost an estimated $16 billion, according to lobbyists, leaving them less than optimistic about changes anytime soon.