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Dem tax provision further muddles farm bill |
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By Ian Swanson
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Posted: 07/26/07 08:00 PM [ET] |
An already controversial farm bill set for debate in the House Thursday could be jeopardized by GOP opposition to a Democratic tax provision that would pay for $4 billion in increased funding for food stamps and nutrition programs.
Rep. Mike Conaway (R-Texas) said he could not whip Republican support for the bill unanimously approved in committee if it included the tax provision, although he said he would still work to fight off a bipartisan amendment to the bill that is backed by groups pushing for farm policy reforms.
If Democrats include the tax provision, Conaway thinks the farm bill will lose a lot of support. “We’d been assured at every turn that this $4 billion would not [be offset] by a tax increase,” he said.
Ways and Means ranking member Jim McCrery (R-La.) also criticized the proposal, which falls under his committee’s jurisdiction. “To attempt to impose this sort of one-size-fits-all tax increase so cavalierly and capriciously, without hearings, without a markup, without any sort of bipartisan discussion, is an insult to the Ways and Means Committee and the House,” he said in a statement.
U.S. Agriculture Secretary Mike Johanns told reporters Wednesday he would recommend that the president veto the House bill if it passes, and singled out the tax provision under consideration for specific criticism.
“I find it unacceptable to raise taxes to pay for a farm bill that includes virtually no reforms,” Johanns said.
During the bill’s markup last Thursday, panel member Marilyn Musgrave (R-Colo.) offered a non-binding amendment stating that no tax increases should be used to pay for farm bill provisions. It was ruled non-germane by Chairman Collin Peterson (D-Minn.).
In hindsight, the amendment “might have been the most germane thing offered all day,” Johanns said.
The fight in committee over the amendment was one of the few times Peterson departed from his calm demeanor. Peterson told committee members he saw partisan politics behind the amendment, and that since the Ways and Means panel handled taxes, the amendment was not germane. He also said there was no evidence a tax increase would be used to offset the farm bill.
What lawmakers would use as an offset has been a mystery since then. But on Tuesday, several committee aides acknowledged that Democrats are considering a bill introduced this week by Rep. Lloyd Doggett (D-Texas) that would effectively raise taxes on U.S. subsidiaries of foreign multinationals.
Doggett, who has estimated his bill would raise $7.5 billion over 10 years, sees it as closing a loophole that allows foreign companies to dodge paying their share of fair taxes in the U.S. But trade groups, including the Organization for International Investment, see the bill simply as a tax hike.
There is also concern among farm lobbyists, who said the inclusion of the provision could jeopardize support for the farm bill from key Republicans such as Rep. Bob Goodlatte (R-Va.), the ranking member of the committee. An aide on Wednesday said he remained “very concerned” about the tax provision.
The support of Goodlatte and other rural Republicans is key for Peterson, as many Democrats are expected to oppose the farm bill because it does not do enough to reform federal farm subsidies.
Doggett’s bill was set for consideration by the House Rules Committee at press time Wednesday. The panel also has to consider more than 100 amendments to the farm bill.
Groups representing U.S. companies were frantically calling and e-mailing members of Congress yesterday to marshal opposition to the amendment.
“Members of Congress need to understand before they vote on this measure that this is not a tax hike on ‘foreigners’; it’s a tax increase on companies in their district,” said Todd Malan, president of the Organization for International Investment.
The committee-approved farm bill is also under attack from conservative Republicans, who object to its expense. The anti-tax group Club for Growth encouraged members Wednesday to reject the “sham reform bill” passed by the committee and instead back a subsidy-slashing amendment whose sponsors include Reps. Ron Kind (D-Wis.) and Jeff Flake (R-Ariz.).
Johanns outlined numerous policy and budgetary problems the administration has with the farm bill, and said the president’s entire team of advisers recommends that the president veto the bill.
On Wednesday, Peterson said Bush had failed rural America with his veto threat. He did not address the tax provision, but Doggett defended it and said it would not effect “legitimate multinational corporations that are not employing a haven to dodge American taxes.”
Doggett’s tax bill targets a common practice that allows companies to pay lower taxes. Under the practice, a foreign-owned firm in the U.S. establishes a third-country subsidiary, which in turn takes over certain assets such as trademarks or patents. The U.S.-based firm makes interest or royalty payments to the third-country subsidiary and writes off those payments as tax-deductible. In effect, this legal loophole lets it pays less in tax to either the U.S. or its home country.
Doggett argues that the practice allows foreign companies to “strip” income from the U.S. without paying a fair share of taxes. His bill would have the U.S. subsidiary pay the higher of the withholding rates between the payment to the parent company and the payment to the other subsidiary.
“Recapturing these lost tax dollars will afford us the ability to pay for better children’s nutrition, ensure approval of a new farm bill and more,” Doggett said in a press statement.
But business lobbyists opposed to the Doggett bill argue that what the companies are doing is perfectly legal and that the practice encourages investment in the U.S., creating jobs. Ending the practice, they say, would hurt companies trying to invest in the U.S. and create jobs.
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