The New York Sun

May 12, 2004 Wednesday

SECTION: NATIONAL; Pg. 7

LENGTH: 1020 words

HEADLINE: Senate Passes $170B Corporate Tax Cut

BYLINE: By LUIZA Ch. SAVAGE, Staff Reporter of the Sun

DATELINE: WASHINGTON

BODY:


The Senate passed a $170 billion corporate tax cut yesterday aimed at staving off a trade war with Europe by repealing an export subsidy and stimulating domestic manufacturing.

Critics said the sprawling bipartisan package, passed on a 92-to-5 vote, is weighed down with tax breaks for special interests ranging from oil companies to Oldsmobile dealers.

Among the many provisions unrelated to international taxation in the 930-page bill is a five-year extension of tax-free Liberty Bonds for the reconstruction of Lower Manhattan and $200 million for subway and commuter rail improvements there.

Democrats had been blocking a vote on the bill but agreed to clear the way in exchange for a vote on a proposal to extend unemployment benefits by 13 weeks. The unemployment proposal required 60 votes to overcome restrictions in the Budget Act, but it failed by one vote on a vote of 59-to-40.

Senator Kerry of Massachusetts was campaigning in Kentucky and was the only senator who did not vote - a fact that was immediately trumpeted by the Bush campaign.

"Last month, John Kerry was pushing for the extension of unemployment benefits. Today he had the chance to actually vote on that question but was too busy playing politics when he would have made the difference in the Senate," said Mr. Bush's campaign spokesman, Steve Schmidt, in a statement.

A spokeswoman for the Kerry campaign, April Boyd, responded, "Senator Kerry strongly supports unemployment benefits and doing what it takes to strengthen this lagging economy. He's working to change this economy so that workers don't have to rely on unemployment benefits to make ends meet."

Both Senators Schumer and Clinton voted in favor of extending benefits.

Mrs. Clinton blamed the measure's defeat on Republicans, whom she accused of "play[ing] politics with America's unemployed."

The Senate also defeated by an 85-13 vote an effort by Senator McCain of Arizona to strip out of the bill a $14 billion energy package that gives various tax breaks to domestic energy producers - a provision he described as pork.

The Senate bill, known as the Jumpstart Our Business Strength (JOBS) Act, was originally designed to repeal a subsidy of American exporters that was ruled illegal by the World Trade Organization.

The European Union had begun to impose the first stages of tariffs - threatening to reach $40 billion over 10 years - against American products if the subsidies were not removed.

The Senate bill would use $5 billion a year in repealed subsidies to pay for income tax cuts for domestic manufacturers.

It also would give American multinational companies a one-time tax holiday to return their overseas income to America at a tax rate of 5.25% rather than at the 35% corporate rate. Pharmaceutical and technology firms had lobbied for the provision.

"This day has been a long time coming, but with today's Senate passage, we're closer than ever to successfully helping our struggling manufacturing economy and living up to our international obligations," said Senator Baucus, a Democrat of Montana, one of the co-authors of the bill.

The bill closes tax loopholes and includes other offsets to avoid increasing the deficit. Critics said the bill had a give-away for almost every senator, and they worried that many offsets would be eliminated before the legislation was signed into law.

"The wheels have been greased more so than [at] any time in recent memory," said the executive director of a spending watchdog group, Taxpayers for Commonsense, Keith Ashdown, who predicted the cost of the bill would grow by about $60 billion as new provisions are added and offsets removed when the House and Senate eventually meet to reconcile their versions of the bill.

Among proposed provisions affecting New York City is the five-year extension of debt-free financing of Liberty Bonds, intended to rebuild Lower Manhattan, from 2005 to 2010, and an explicit statement that the bonds could be used for the purchase of land and the construction of new buildings.

It also includes $200 million for rail transportation construction in Lower Manhattan.

The projects could improve subways, commuter rails, and rail links to airports, and half would be designated by the mayor and half by the governor.

The bill also includes $232 million in taxpayer funds to finance $2 billion in "green bonds" for four mall developments, including a Destiny USA mega-mall in Syracuse.

The future of the tax package is uncertain since a companion bill has long been bogged down in the House of Representatives over provisions that Democrats and some Republican say would encourage companies to send jobs abroad.

Rep. Charles Rangel of New York, the senior Democrat on the House Ways and Means Committee, has been one of the leading opponents of the House bill and has proposed an alternative version that more closely resembles the measures passed yesterday in the Senate.

A spokesman for Mr. Rangel, Dan Maffei, said yesterday that he did not foresee a resolution to the stalemate any time soon.

"The problem is, you have an irresistible force and an immovable object. The immovable object is [Ways and Means Committee Chairman Rep. William] Thomas's insistence on keeping provisions that keep jobs overseas in the bills. The immovable force is that this is an election year and both Republicans and Democrats don't want to vote for those provisions," he said.

The Senate bill passed yesterday also includes:

* A$1.2 billion tax break for film producers that would allow studios to expense up to $15 million in the first year of production of small and independent films in America, and more if the films are filmed in low-income communities or the deep South.

* $492 million for the maintenance of railway tracks.

* $519 million for producers of small jets and planes.

* Tax breaks for the cruise industry that would save Carnival Corporation $15 million and Royal Caribbean $8 million to $10 million.

* A tax break on archery products of about $8 million.

* $25 million for eliminating a 30% tax on dog- and horseracing.

* $94 million for the renovation of a hotel in Sioux City, Iowa, into housing for low-income seniors.