American Jobs Creation Act of 2004 - Conference Report

CONGRESSIONAL RECORD
SENATE
Oct. 11, 2004

AMERICAN JOBS CREATION ACT OF 2004-CONFERENCE REPORT

Mr. DURBIN. Mr. President, this legislation began as a modest effort to repeal an illegal export subsidy. It has grown to 633 pages with nearly $140 billion in corporate tax breaks over the next decade. The conference report replaces the $50 billion export subsidy with a $77 billion manufacturing tax cut-a net tax cut for domestic manufacturing of $27 billion after the loss of the subsidy, $43 billion in tax breaks on overseas income, and $17 billion in tax breaks for special interests.

The bill does not include FDA regulation of tobacco, a Senate-passed provision to block new overtime rules that hurt workers, and a Senate-passed provision giving a tax break to companies that make up the pay gap for activated Reservists and Guardsmen.

It does include a tobacco buyout that gives most of the benefits not to small farmers but to anyone who owns tobacco quotas and will do nothing to help farm communities, a huge amount of corporate pork, and almost twice as much in new international tax breaks as in domestic manufacturing tax breaks, which will encourage companies to move operations and assets abroad. It also uses the same accounting tricks as the previous Bush tax cuts to make the bill appear revenue neutral when it will actually cost billions.

The Senate approved a tobacco buyout with $2 billion in transition assistance to communities that depend on tobacco production. The conference report drops this assistance entirely.

The Senate approved a buyout with limitations on who would be eligible. This was an attempt to make sure small farmers got most of the benefit. Farmers had to be actively engaged in production in the last few years and quota holders had to be in the system since 2002. Those restraints were completely dropped in conference. Under this bill, 80 to 85 percent of the people who benefit are quota owners who don't qualify as growers, according to the Wall Street Journal.

In Kentucky, Virginia, North Carolina, and Wisconsin, beneficiaries include country clubs, churches, colleges, universities and high schools that own land in tobacco-growing counties.

Larry Flynt and his brother Jimmy own land that had a quota to grow 600 pounds of tobacco in 2003, according to the Environmental Working Group. They will benefit from the buyout. The Wall Street Journal quoted Jimmy Flynt, president of Hustler Entertainment, on the buyout. He said:

We got out of the tobacco business and into the porn business. We walked away from that blood, sweat and tears.

The Senate approved a tobacco buyout combined with FDA oversight of tobacco by a vote of 78 to 15. The legislation was a hard fought and painstakingly crafted balance between public health and struggling farm economies. Now it is gone from the bill, but the tobacco buyout remains. The conferees dropped FDA regulation even as the tobacco industry inflicts terrible damage on people's health. It kills more Americans than AIDS, alcohol, car accidents, murders, suicides and fires combined 400,000 people a year. Every day, 4,000 children will try a cigarette for the first time and 2,000 will become regular smokers. Of those 2,000, one third will die prematurely of smoking related illnesses.

We have missed an opportunity to protect children from tobacco addiction and save them from premature death. If you think I am overstating the case, look at the tobacco industry's latest advertising campaigns to attract our children to candy-flavored cigarettes: R.J. Reynolds has recently marketed Kauai Kolada cigarettes, with "Hawaiian hints of pineapple and coconut," and Twista Lime cigarettes, described as "a citrus tiki taste sensation."

Without FDA authority, the tobacco companies will continue to target our children with their products. We talk about Leaving No Child Behind when it comes to education. We should not leave them behind when it comes to tobacco either.

The Senate version of the bill blocked the Bush administration's new rules that stripped the right to overtime pay from six million Americans. For workers who receive overtime pay, that overtime compensation accounts for 25 percent of their paychecks. So the Bush administration's regulations slash the paychecks of hundreds of thousands of Americans by 25 percent.

Both the Senate and House have voted to block the overtime rules. This clearly has the support of a majority of both the House and the Senate, yet it was stripped in conference. Corporations are getting huge tax breaks from this bill, but not one worker will have his or her well-earned overtime pay restored.

This bill is loaded with $17 billion in special interest tax breaks. Does anyone outside the Finance Committee really know everything that is in this bill? Does anyone inside the room even know? Some of the tax breaks it includes are:

$500 million for railroad companies;
$494 million for restaurant owners;
$234 million for beer, wine, and hard liquor producers;
$101 million for NASCAR track owners;
$44 million for ceiling fan importers, inserted at the request of Home Depot;
$42 million for Hollywood producers;
$28 million for cruise ship operators, which greatly benefits Carnival Corporation and Royal Caribbean;

$11 million for makers of tackle boxes, which will benefit Plano Molding Corporation, a company headquartered in the district of the Speaker of the House, Dennis Hastert;

$9 million for makers of bows and arrows;

A $9 million break on customs duties for the importation of steam generators and nuclear reactor vessel heads, inserted at the request of General Electric;

$4 million for makers of sonar fish finders;

$4 million for native Alaskan whalers;

$27 million for foreign gamblers who win at U.S. horse and dog tracks.

Is the intention of this bill to give tax breaks for foreign gamblers who win at U.S. horse and dog tracks? I thought the point of this bill was to solve the FSC/ETI problem so that U.S. goods would no longer face tariffs abroad, and perhaps to promote domestic manufacturing. After all, it is called a "JOBS" bill by its authors. So now we have to entice foreigners to visit the United States and plunk down their money at the track, by giving them tax breaks on their winnings, in order to create jobs in the United States?

The conference report does not just include a huge amount of pork. It also fails to effectively close corporate tax loopholes. The Senate version banned accounting techniques that have no economic purpose except to shield corporate income from taxes. This would have saved $15 billion in lost tax revenue over the next 10 years. The conferees refused to include this measure.

The bill also fails to take a strong stand against companies that have moved overseas for tax purposes. The Senate version ended tax advantages for companies that relocate to Bermuda or other tax havens and would have eliminated $3 billion in lost tax revenues. The conferees severely weakened this provision by not making it retroactive. They replaced it with a House version that will eliminate only $800 million in lost tax revenue.

The $3 billion saved by the stronger Senate measure would have been enough to pay for the tax break for companies that make up the pay gap for Reservists and Guardsmen. But this break for our men and women in the military was dropped.

Instead, other companies will benefit. As the Wall Street Journal reported on Wednesday, the bill grandfathered in four Houston-based companies-Cooper Industries, Weatherford International Limited, Noble Corporation, Nabors Industry-that recently relocated to the Cayman Islands and Bermuda.

The bill includes $43 billion international tax breaks that will encourage companies to relocate to tax havens like Bermuda and to move jobs out of the country. According to an analysis published last month by the Tax Policy Center, a joint venture of the Brookings Institution and the Urban Institute, these tax breaks increase the already strong incentives of U.S. multinational firms to operate abroad and to shift profits to low-tax locations. Even corporate executives admit they are moving assets and operations overseas. In February of this year, the Financial Times quoted one corporate tax official as saying:

You only have to look at the way we tighten our belts in the United States through layoffs to understand what is happening.

More than a dozen companies such as Tyco, Foster Wheeler, and Ingersoll Rand have relocated their headquarters to foreign tax havens in the past decade alone. And jobs are moving abroad as well. Since President Bush took office, 2.7 million manufacturing jobs have been lost. It is no mystery where these jobs have gone: out of the country in search of cheap labor and low tax rates. We should not encourage this kind of behavior with new tax breaks on overseas operations.

Some of the $43 billion in international tax breaks include:

An $8 billion tax break that makes it easier for companies to use taxes on one kind of foreign income to reduce what they owe on foreign income of a different type-General Electric pushed hard for this provision and got it;

A $7 billion tax break that allows companies to carry their foreign tax credits forward for 10 years, compared to the current law that allows only 5 years;

A $5.6 billion tax break that allows companies to reclassify domestic income as foreign income to take advantage of unused foreign tax credits;

A $3.3 billion tax holiday to encourage companies to bring foreign profits back to the United States, supposedly for investment here.

This tax holiday provision is worth looking at more closely. The Center on Budget and Policy Priorities calls it the "Oracle" tax break because the software company Oracle will reap huge benefits. Companies leave profits abroad to take advantage of lower tax rates and to defer payment of their American taxes. This bill gives them a temporary reduction in the tax rate to repatriate these funds. The supporters of this tax holiday say the bill requires companies to reinvest these repatriated funds to create jobs in the U.S. But according to the Tax Policy Center, the conditions on the use of these repatriated funds are difficult to enforce and are unlikely to create new investment in our country.

I am not the only one who thinks the tax holiday is a bad idea. Even the Bush administration opposes it. Treasury Secretary John Snow sent a letter to the conferees that said:

U.S. companies that do not have foreign operations and have already paid their full and fair share of tax will not be able to benefit from this provision. Moreover, the Council of Economic Advisers' analysis indicates that the repatriation provision would not produce any substantial economic benefits. The Administration believes the $3 billion revenue cost. . . could be better used to reduce the tax burden of job creators in the United States.

Even the centerpiece domestic manufacturing tax cut has serious problems:

The oil and gas industries were never eligible for the FSC/ETI export subsidy, but they will get the manufacturing benefit, even though oil prices are at historic highs.

Corporate farms, but not family farms, will be eligible.
Engineering firms like Bechtel and Halliburton will be eligible.

Starbucks secured a provision declaring that coffee roasting is a form of manufacturing, so the company will benefit from the tax cut.

Deceptive figures to make the bill appear revenue neutral.

The bill's supporters say it is revenue neutral. But since 2001, the Republican leadership has repeatedly relied on budgetary gimmicks to hide the true cost of their tax cuts. This bill is no different. It will increase the deficit at a time when it is at record levels.

The Congressional Budget office reported last week that we had a $415 billion deficit in 2004. This is $41 billion higher than last year. It is the fourth straight year of increasing deficits. This is the first time since World War II that we have had 4 consecutive years of increasing deficits.

Because of the huge deficit, the Washington Post reported on Friday that the White House has ordered a draft budget for 2006 that cuts Homeland Security, Veterans Affairs, and Education.

The bill slowly phases in the manufacturing tax cut over 5 years. Because of the phase-in, about one-third of the total cost is concentrated in the last 2 years. According to the Center on Budget and Policy Priorities, the long-run cost of the measure would likely be significantly higher than the $77 billion estimated for the first 10 years.

The bill also has tax breaks that expire before the end of the 10-year period. There are nearly a dozen provisions in the bill that sunset between 2005 and 2008. According to Citizens for Tax Justice, the cost of the legislation could balloon to $230 billion over 10 years if those tax breaks are extended. This far exceeds the $140 billion in revenue offsets.

The expiring provisions and their supposed cost and true cost if extended are:

Small Business Expensing $1 billion True cost: $33 billion';
State and Local Tax Deduction $5 billion True cost: $30 billion;
15-year Straight Line Cost Recovery $2 billion True cost: $11 billion;
Other Expiring Cuts $1 billion True cost: $4 billion.

These cuts supposedly cost only $7 billion over 10 years, but in reality they will cost $80 billion if extended. And as we have repeatedly seen, the Republican leadership is more than willing to extend "temporary" tax cuts again and again without any concern about the effect on the budget, despite the record deficits we face. I have no doubt this will happen again with these cuts.

The conference report has many flaws, but it also includes an historic ethanol program that I have worked for many years to pass. The ethanol tax credits in the bill are important to Illinois and the Nation's energy policy, and I would like nothing better than to vote to pass these measures.

The bill enacts the Volumetric Ethanol Excise Tax Credit, which changes the administration of tax incentives for renewable fuels to avoid a reduction in highway funding. It extends the ethanol tax incentive through 2010. It also allows small ethanol producer cooperatives to pass credits through to cooperative members.

Ethanol has been an important issue for me throughout my 20 plus years in Congress. In 1987 I was the first member of Congress to propose that Congress require the gasoline supply to include 5 billion gallons of ethanol.

I am greatly disappointed to have to vote against this bill, despite the ethanol provisions, because of the outrageous and unacceptable way that it deals with the central issue of replacing the export subsidy.