October 23, 2004
Bush signs $136 billion tax-cut bill
Durbin, LaHood bash law that may cost Cat and Boeing millions
By DORI MEINERT and PAUL GORDON
of Copley News Service and the Journal Star
WASHINGTON, D.C. - President Bush on Friday signed into law a massive tax overhaul that repeals a controversial export subsidy that had saved Caterpillar Inc. and Boeing - two of Illinois' largest exporters - hundreds of millions of dollars in recent years.
Initially aimed at resolving a long-running dispute with the European Union, the new law also creates $136 billion in new tax breaks for a broad array of U.S. manufacturers, from Home Depot to a fishing tackle-box maker in Plano, Ill.
Critics, including U.S. Rep. Ray LaHood, R-Peoria, and U.S. Sen. Dick Durbin, D-Ill., have attacked the legislation as election-year pork.
"This is very bad legislation," said LaHood, one of two Illinois Republicans to vote against the measure earlier this month and not only because of its cost to Caterpillar, which is headquartered in his district.
LaHood also criticized the speed with which Congress considered the complex measure as it rushed to adjourn
for the campaign season. Most lawmakers didn't have a chance to read the 630-page bill before they voted on it, he said.
"I didn't come to Washington to vote on things I can't read," he said in a recent interview. "We ought to have at least a chance to look at the bill and see what's in it. I guarantee that there are things in that bill that are very embarrassing for people."
Caterpillar saved $72 million in 2003 because of the export subsidy and is likely to save more in 2004, Nancy Snowden, Caterpillar's director of investor services, told analysts Thursday. The export subsidy reduced its effective tax rate last year by 4.9 percent, Snowden said.
The measure provides for a transition period to help ease the financial pain for Caterpillar and other companies who had enjoyed the $5 billion a year subsidy. They'll receive 80 percent of the subsidy's benefit in 2005 and 60 percent in 2006.
Caterpillar is expected to fare better than Boeing in the phase out because the transition benefits are based on future exports rather than an average of past years, as Boeing wanted. Caterpillar's exports are growing.
The two companies had joined in early lobbying efforts to help soften the blow to their companies, but later parted ways. Caterpillar officials threw their support behind the House version of the bill, while Boeing reportedly supported the Senate version.
"We applaud President Bush for supporting this pro-growth and pro-manufacturing legislation, which helps enable companies like Caterpillar to remain competitive from a U.S. manufacturing base," said Caterpillar Government Affairs Manager Doug Crew.
But Boeing would be allowed to claim the subsidy for long-term sales contracts, a provision that EU Trade Commission Pascal Lamy said will be looked at closely. Boeing received an average of $178 million from 2001 to 2003, according to the European Union.
In addition to ending the EU sanctions, the legislation "is good for America's workers because it will help create jobs here at home by promoting the competitiveness of our manufacturers and other job creators in the economy," White House Press Secretary Scott McClellan told reporters.
The legislation also includes tax incentives for ethanol and biodiesel fuel production and will make more highway funding available to states by ensuring that the cost of an ethanol tax credit for refiners is taken from the general fund rather than the Highway Trust Fund.
The legislation is the culmination of a two-year effort to repeal the subsidy, which was ruled illegal by the World Trade Organization. Earlier this year, the EU began imposing retaliatory tariffs on more than 1,600 American exports.
The measure grew sizably as its authors maneuvered to attract support from lawmakers. To pay for the new corporate tax relief over the next decade, the legislation would rely on the $5 billion in savings from repealing the export tax subsidy and would close other corporate loopholes.
"They claim it's paid for, but I think it's very shaky," LaHood said.
It isn't yet clear whether the EU will drop the retaliatory tariffs.
The bill passed the House, 280 to 141, and the Senate, 69 to 17.
Durbin, a longtime tobacco foe, was particularly outraged that the bill included a $10 billion buyout for tobacco farmers without a provision to grant the Food and Drug Administration authority to regulate cigarettes.
"You don't have to be a veteran in Washington to know that the worst things happen in the closing moments, and this was a perfect example," Durbin said. "The special interests had a field day with this bill."