Bush and his corporate welfare tax breaks..he just doesn't quit:
Treasury circumventing Hill on tax breaks
By Alexander Bolton
In a series of little-noticed executive orders intended to ease the tax burden on corporate America, the Bush administration has implemented a number of new policies that will provide corporations with billions of dollars in tax relief without the consent of Congress.
The actions include new regulations, notices of new rulemaking, and tax collection policies on issues ranging from tax-free compensation for corporate executives to tax deductions for “intangible” assets to greatly expanded tax accounting flexibility for small- and medium-sized businesses.
THOMAS BUTLER
Rep. Bill Thomas (R-Calif.)
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Many of the business-oriented actions taken by the Treasury Department since the beginning of the year are so arcane that few members of Congress, including those with jurisdiction over tax policy, were familiar with the new regulations and revenue procedures.
When asked about the new policies implemented by the Treasury Department, Rep. Bill Thomas (R-Calif.), chairman of the House Ways and Means Committee, said he was not familiar with them.
THOMAS BUTLER
Sen. Jay Rockefeller (D-W.Va.)
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So did Sen. Chuck Grassley (R-Iowa), ranking member of the Senate Finance Committee, along with Sens. Kent Conrad (D-N.D.), John Kerry (D-Mass.), Jim Jeffords (I-Vt.) and Olympia Snowe (R-Maine), who are also members of the tax-writing panel.
Grassley said that Congress would have to address the controversy over how to treat intangible costs, an issue dubbed INDOPCO after a court case that resolved a corporate tax dispute with the Internal Revenue Service.
“On INDOPCO, that is going to have to be subject to legislation I don’t think [the administration] can do much — maybe they can do something in that area but we’ve got to legislate … too,” he said.
However, Grassley, who still operates a family farm, indicated he would support more business-friendly tax policies, especially if they help family farmers and small businesses.
“It seems to me that if you got a cost of doing business, you ought to be able to expense it,” he said.
Other lawmakers who have followed the Treasury Department’s actions described them as “an end-run” around Congress.
THOMAS BUTLER
Sen. Charles Grassley (R-Iowa)
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“That’s the hallmark of this administration,” said Sen. Jay Rockefeller (D-W.Va.). “I really believe this is a corporate administration.” “Of course it’s an end-run [around Congress],” he added.
Rockefeller said the tax-related actions are similar to the rollback of Clinton-era environmental and labor regulations that President Bush approved during his first year in office.
Rockefeller said the Finance Committee would probably hold hearings on the matter, but noted it would be very difficult to find time in the near future because the panel is loaded down with other issues.
“It sure is being noticed and it goes with who was [Bush] talking to before the energy policy came out,” he said. “It’s profoundly troubling in West Virginia.”
Lloyd Doggett (D-Texas), a member of the House Ways and Means Committee who is acknowledged by his colleagues as an expert in tax policy, accused Republican lawmakers of conspiring to eliminate the corporate income tax.
Doggett said his committee’s leadership “has defaulted on enforcing corporate tax law.” He cited a May 19, 2001, newspaper interview of Treasury Secretary Paul O’Neill as evidence that O’Neill wants to eliminate corporate taxation.
“The more the public learns, the angrier they become,” he said.
One academic expert specializing in tax law has called on Congress to exercise greater oversight of the Treasury Department’s decisions. Another tax law expert has described one of the department’s decisions as “lawless.”
“There is a question about whether there is substantive oversight of tax policy,” said Ronald Pearlman, a professor of tax law at Georgetown University and assistant secretary of the treasury for tax policy in the Reagan administration.
“The tax-writing committees have a broader responsibility to keep an eye on broad actions taken by the Treasury of the [Internal Revenue] Service to make sure they are not an abrogation or quasi-legislative action and I don’t think there is enough of that,” he said.
Pearlman emphasized that he did not want to pass judgment on the actions, but added that lawmakers should review whether the cost of intangible assets should be deducted or amortized.
“I think it is appropriate for tax-writing committees to take a look at the INDOPCO issue and query the Treasury Department in a public forum and ask what they are doing, and ask academics and experts and appropriate others to express their views,” he said.
Another academic expert said a tax court had supported the government’s previous policy that businesses should not be allowed to deduct the cost of an intangible asset, a policy that the Treasury Department indicated it would reverse in a January notice of rulemaking.
“The Treasury is giving away issues on which the courts have split and on which the tax court has held in the government’s favor,” said Marty McMahon, a professor of tax law at the University of Florida.
McMahon also described one Treasury Department policy, which allows some companies with less than $10 million in receipts to use accounting methods that had been reserved for much smaller businesses, as “lawless.”
“There is absolutely no statutory authority to do what was done there,” said McMahon. “Most corporations with annual average gross receipts of more than $5 million used to have to use the accrual method of accounting if they either manufactured or sold goods or maintained inventories.”
“Congress drew the line in the statute and the Treasury Department simply doubled it,” he said.
Democrats in Congress said if President Bush attempted to implement these policies through legislation, they would almost certainly be met with stiff Democratic resistance. But as administrative actions, they fail to catch the attention of many lawmakers on the Senate Finance Committee and House Ways and Means Committee with jurisdiction over tax issues.
One academic expert specializing in tax law has called on Congress to exercise greater oversight of the Treasury Department’s decisions. Another tax law expert has described one of the department’s decisions as “lawless.”
Since the beginning of the year, the department has issued new regulations, notices of new rulemaking, and tax collection policies on issues ranging from tax-free compensation for corporate executives to tax deductions for “intangible” assets to greatly expanded tax accounting flexibility for small- and medium-sized businesses.
Many of these decisions have helped corporate taxpayers by resolving in their favor long-standing disputes with the Internal Revenue Service (IRS), including disputes the government had won or seemed likely to win in court.
In January, the Treasury Department issued an advance notice of proposed rulemaking indicating that it would allow businesses to deduct the cost of acquiring or enhancing intangible assets such as licenses or subscription lists instead of depreciating or “amortizing” the cost of the asset over a number of years, as had been required in many instances before.
Also in January the department increased the size of the deduction businesses could take on the inflation of inventory value from 80 percent to 100 percent, an increase that the previous administration contemplated several years ago but the Ways and Committee opposed for costing billions of dollars, according to one tax lawyer.
In addition, the Treasury Department has created a number of generous tax collecting procedures: one allows executives to receive tax-free compensation in the form of life insurance (procedure 2002-8), a perk most notably enjoyed by Enron’s former Chairman Ken Lay; another greatly expands the number of items or transactions for which companies can change their accounting methods without notifying the IRS (procedure 2002-9); a third allows businesses with receipts under $10 million per year to use an accounting method that Congress had reserved for businesses half that size (2002-28).
Corporate tax lawyers estimate these new policies will save their clients and cost the government billions of dollars a year, but because they are administrative actions, their exact price is unknown outside the administration. Congress only has access to the cost of legislative proposals.
For that reason few lawmakers have noticed the significant benefits the administration has given corporate taxpayers; benefits that would cause a political firestorm on the Hill if attempted through the legislative process.
One tax attorney, however, defended the administration’s actions, arguing that in many cases they simplify the tax code and save businesses and the IRS time and money. She noted that the IRS spent a quarter of its examination resources on deciding whether assets can be deducted or should by amortized over a number of years, a controversy that would be solved in part by the new rules proposed this year.
Nevertheless, one expert said Congress must not neglect its duty to investigate tax policies and ensure the executive branch is not overstepping its bounds.
One Democratic aide on the Senate Finance Committee said a pattern is emerging from the administration’s tax decisions this year. “They’re resolving a high percentage of issues in taxpayer’s advantage instead of the IRS’s favor,” the aide said. |
