The Corporate Tax Break Feeding Frenzy

An Interview with Nancy Watzman

Nancy Watzman is research and investigative projects director for Public Campaign, a group ìdedicated to sweeping reform that aims to dramatically reduce the role of special interest money in Americaís elections and the influence of big contributors in American politics. Public Campaign has recently launched a web site, www.howdarethey.org, which highlights wartime profiteering. Watzman is the author of a November 2001 Public Campaign study, Buy Now, Save Later: Campaign Contributions and Corporate Taxation.

Multinational Monitor: Why do corporations want to eliminate the Alternative Minimum Tax?

Nancy Watzman: The alternative minimum tax (AMT) repeal provision — which is in the House-passed stimulus bill — is a blatant give-away to large corporations, and is something they’ve been lobbying for for years.

The House stimulus package not only includes a repeal of the AMT, it also includes a rebate of any AMT payment that a corporation has made since the law was enacted.

Our analysis shows that 16 companies which would get $7.4 billion in immediate tax rebates under the House plan contributed nearly $46 million to federal candidates and parties since 1991. Two thirds of that money went to Republican candidates and party committees. So these are big-time campaign money players, and have been for a long time.

MM: What is the Alternative Minimum Tax?

Watzman: The AMT was put in place in the 1980s because so many corporations were taking advantage of tax breaks and loopholes that they were often whittling their tax bills down to zero, or even less. The AMT requires companies to calculate taxes using regular rates and existing tax breaks, and also with a lower — alternative minimum — rate but fewer loopholes. They are supposed to pay the higher of the two.

MM: What would the repeal and rebate mean in terms of benefits for specific companies?

Watzman: Citizens for Tax Justice identified 16 companies as gaining the most. They include household names and major campaign contributors like ChevronTexaco, General Electric and Enron.

ChevronTexaco, for example, is the source of nearly $7 million in campaign contributions, and would get $572 million in immediate rebates. General Electric gave $6.2 million and would get $671 million in rebates. And the list goes on. These are all major, profitable companies.

MM: How long have the companies been campaigning to eliminate the AMT?

Watzman: Pretty much since it was passed in 1986. The House Ways and Means Committee passed a repeal of the AMT back in 1995, but the repeal never became law. The corporate lobby did manage to weaken the law somewhat in 1997.

Repeal has been on the wish list for a long time. They are shoving it through now at a time of crisis because it is an unpopular thing that normally would be pretty tough to get through Congress.

MM: The Public Campaign report also looks at other tax breaks that groups of companies have been lobbying for. What do you find in those other areas?

Watzman: As I mentioned, the AMT was put in place because companies take so many deductions that they whittle their taxes down to zero. The way they do it is through a whole long list of exotic tax breaks that most people know nothing about.

We looked at some of these in the report. We found major lobbying for loopholes by companies in the form of campaign contributions.

One example is a tax loophole called foreign sales corporations, where companies can claim credits on profits from exports. A bunch of companies are lobbying to save that tax break even though it has been declared illegal by the World Trade Organization.

It is also a great example of how these things get expanded and changed to benefit corporations.

Back in 1997, Microsoft led a lobbying campaign to get the tax break extended to software companies. They had a tiny, 87-word provision put in a massive budget reconciliation bill. No one noticed it, but it was worth a lot of money to software companies, including Microsoft. Their contributions back in 1997 peaked the same month that Congress passed that law.

It shows how corporations are capable of working the system. They are able to hire the best help, and use the campaign money to game the system to their benefit.

It’s as if when you’re filling out your tax form you could hire as your personal lobbyist the former head of the Joint Committee on Taxation.

That’s what these corporations get to do. Ken Kies, who used to be the chief of staff for that committee, is making quite a lucrative living as a tax lobbyist for PriceWaterhouseCoopers. And he’s not the only former staff member who has gone to work and used connections to secure these sort of benefits for clients.

The Wealth Concentration Act

The House of Representatives has approved an “economic stimulus” bill that over the next three years would almost double the size of the Bush tax cuts enacted last May. Officially, the new corporate and individual tax cuts are estimated to cost $212 billion over the next three fiscal years (and the actual cost is likely to be considerably higher).

A distributional analysis of the bill’s effect in calendar 2002 finds:

• Forty-one percent of the tax cuts would go to the best-off 1 percent of all taxpayers, whose average tax cut in 2002 would be almost $27,000 each.
• Almost three-quarters of the 2002 tax cuts would go to the best off tenth of all taxpayers.
• Only 7 percent of the tax cuts would go the bottom three-fifths of taxpayers.

Corporate tax cuts

Major corporate tax cuts in the House “stimulus” tax bill include:

• The largest corporate tax loophole under current law — accelerated depreciation — would be almost doubled, at an estimated cost of $109 billion over the next three years. Ostensibly, these additional tax subsidies will expire after 2004, but similar “temporary” measures enacted in the past have typically been routinely extended.
• The bill would permanently repeal the corporate alternative minimum tax that now discourages corporate tax sheltering and forces some otherwise low- and no-tax large, profitable corporations to pay at least something in taxes. In addition, companies that paid the minimum tax in the past would get an immediate refund of those payments. This would officially cost $24 billion over 10 years, and more likely two or three times that much due to increased tax sheltering not reflected in the “official” estimate. A large share of this money would go to just a handful of companies, including IBM, General Motors, General Electric, and Chevron Texaco.
• The bill would make it easier for corporations with “tax losses” to use them to apply for refunds of taxes they paid in the past, at a cost of more than $10 billion over the next three years. Like the increase in depreciation write-offs, this provision is technically supposed to expire after 2004.
• An expiring current-law tax shelter for multinational corporations, notably General Electric and the major auto companies, which allows them to shift taxable profits off-shore through manipulations of interest payments would be made permanent. The estimated cost over 10 years is $21 billion.
  

Individual tax cuts

Among the key cuts for individuals:

• The top income tax rate on capital gains would be reduced from 20 percent to 18 percent. Assuming no increase in realized gains, this would cut taxes by $10 billion in calendar 2002 alone (with three-quarters of that going to the top 1percent). If as some predict, realizations go up, then the upper-income tax savings will be even larger.
• The cut in the former 28 percent tax rate to 25 percent, scheduled to take effect in 2006 under the Bush tax-cut bill enacted earlier this year, would be accelerated to 2002. (Unless changed, under current law the rate will be 27 percent in 2002 and 2003, 26 percent in 2004 and 2005, and 25 percent in 2006 and thereafter.)
• Individual exemptions from the alternative minimum tax would be temporarily increased.
• The 2001 tax rebates of $600 for couples, $500 for single parents, and $300 for childless singles would be extended to about 37 million couples and individuals who did not get them or got less than the full amounts. To qualify, a person or couple must have filed a tax return for tax year 2000. For those affected, the $13.7 billion in additional 2001 rebates would average about $350.