Boxer Promotes One-Time Corporate Tax Break to Boost Spending

Boxer Promotes One-Time Corporate Tax Break to Boost Spending

(SF Chronicle, Oct. 22) -- Sen. Barbara Boxer is making a major push
for a big corporate tax break that would provide a one-time tax
holiday on billions of dollars in overseas earnings. Strongly backed
by such Silicon Valley giants as Intel and Hewlett-Packard, Boxer
contends the measure would recharge business spending on capital
equipment, whose weakness has been a major source of the slump in the
technology industry.

Wielding a new study by economist Allen Sinai, Boxer said Tuesday
the tax-holiday provision would boost capital spending by $78 billion,
create 660,000 new jobs, and add almost 1 percentage point to economic
growth over the next two years. "We need job creation and we need it
now, and we have a very good idea how to do it," Boxer said. "Nine
million Americans are out of work, and the economy isn't turning
around fast enough."

The Bush administration, which is usually enthusiastic about tax
breaks of all kinds, has been cool to this one, arguing that tax
holidays are not good policy and would reward companies for sheltering
overseas income. But the Democratic California senator has significant
support from members on both sides of the aisle who are alarmed by the
loss of 2.7 million jobs over the past three years.

Surveys indicate that U.S. corporations are parking or investing
abroad anywhere from $265 billion to $406 billion in their overseas
earnings to avoid the 35 percent U.S. tax on corporate earnings.
Boxer's bill would slash the tax rate to 5.25 percent for just one
year as way to lure that money back home.

Palo Alto computing giant Hewlett-Packard and Santa Clara firms
Intel and Sun Microsystems have been among the biggest backers of
Boxer's provision. HP has said it has kept about $14.5 billion in
earnings outside the country to avoid paying the 35 percent corporate
tax. "I don't view this as a corporate tax break at all, because
corporations are paying no taxes now, and they will pay tax when it's
brought back, albeit at a lower rate," Boxer said.

Without the tax break, she added, the money "is just not going to
come back, it's just going to sit out there. The beauty of this is
it's one time, one year, and if we're right, it's going to be a huge
revenue-raiser as well as providing over 600,000 jobs. We'll have a
chance to see if very, very, very well-respected economists are
correct on this, and if they're wrong, I'll be the first to admit it."

Boxer has enlisted several GOP allies, including Sens. John Ensign
of Nevada and Gordon Smith of Oregon. Ensign said the two met with
administration officials at the White House on Tuesday and while
"they're certainly not crazy about it," they promised not to fight the
measure.

Boxer is pushing to have the provision included in a big corporate
tax bill that must be passed before Congress adjourns or risk exposing
the United States to as much as $4 billion in trade sanctions by the
European Union. The World Trade Organization ruled three years ago
that a U.S. tax break for exporters -- known as the foreign sales
corporation -- is illegal, giving permission to the European Union to
retaliate against U.S. exports unless it is scrapped. EU officials
said Congress must act by Dec. 31 or face retaliation.

But Congress has little appetite for another tax cut -- especially
one directed at corporations -- with the federal deficit hitting a
record $374 billion in the fiscal year just ended and expected to
reach $500 billion next year. Even House Republican leaders have said
the new tax cut will require some heavy lifting and warn that not all
their members back a bill that Bakersfield Republican Rep. Bill
Thomas, chairman of the Ways and Means Committee, says his committee
will pass next week.

Thomas had initially proposed a $128 billion bill that he said
would institute much-needed corporate tax reforms. But under pressure
from his party, Thomas has scaled his bill back to $60 billion -- and
even that faces an uphill climb. The Senate Finance Committee version
of the corporate tax measure is estimated to have no effect on
government revenues.

At the same time, GOP leaders calculate that their members are
terrified by the fallout from the weak job market heading into next
year's elections, and that may give the bill enough support to pass
despite deficit worries. "The pros are, this will avoid the mother of
all trade wars, which could escalate, and our members understand that,
particularly in this soft economy," said a House GOP leader's aide.
"The other factor is overseas competition: Is there a way to create
jobs, how soon can those jobs come on line, and how soon can those
companies threatening to leave be persuaded to stay?"

The Sinai study cited by Boxer -- which she said could prove
influential with her colleagues -- yielded even higher
growth-enhancing results than earlier estimates by
PricewaterhouseCoopers and JP Morgan Securities. Sinai is a well-known
macroeconomist at Decision Economics Inc. The study was funded by the
American Council for Capital Formation, a nonprofit advocacy group.

Boxer tried to get the provision included in the big Bush tax cut
enacted last spring, and it won a 75-25 Senate vote. But Thomas
removed the measure as the tax bill progressed through Congress. He
indicated he wanted to save it for later, when its popularity might
help win votes for the less digestible corporate tax package.

-- -Kraig Grady
North American Embassy of Anaphoria Island
http://www.anaphoria.com
The Wandering Medicine Show
KXLU 88.9 FM WED 8-9PM PST