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Nevermind the Subsidies, We've Got Tax Increases

July 26, 2007 - by Donny Shaw

Earlier in the week, I wrote about the farm bill and how its major provision, a subsidy for growers of a select group of crops, was not as progressive as many had hoped for. Well, the farm bill is about to hit the House floor and a new crop of issues has come up that is splitting the parties and threatening to keep the whole bill from moving forward.

At issue is a new tax that Democrats revealed last night as a plan to pay for a $4 billion increase in the USDA’s food stamp program. The proposed tax would apply to foreign companies that do business in the U.S. and Democrats see it as a loophole closer. Republicans, however, see it as a simple tax increase. When they got word of the new tax, House Republicans backed off their support of the bill and President Bush quickly issued a veto threat. His argument against the tax increase is ubiquitous among Republicans:

>The Administration strongly opposes the provision that would raise taxes on payments by U.S. subsidiaries to foreign affiliates. In addition to being a tax increase, this provision would discourage foreign investment in the United States, override tax treaties the U.S. has with many nations, and raise questions under other international agreements. Foreign investment in the United States creates American jobs and strengthens economic growth. This provision would adversely affect job creation in the U.S. and relationships with our major trading partners and could provoke retaliation in the form of higher foreign taxes on U.S. firms.

House Democrats, worried that they may have lost too much Republican support for the bill, worked though the night on a plan to pull in support from the other direction. Since rural-district Republicans suddenly found the bill bitter, they sweetened it up a bit for urban Democrats. CongressDaily ($):

>Agriculture Chairman Peterson said Republicans forced him, Speaker Pelosi and other House leaders to work late into the night to make changes to woo urban liberals. “The speaker knocked some heads together last night,” Peterson said. “It came close to being unraveled.” At 2 a.m., Pelosi approved a change in the McGovern-Dole international school feeding program, shifting its funding source from appropriated funds to mandatory spending and providing $840 million over five years for that program. Peterson said that provision won the support of Rep. James McGovern, D-Mass., a leader on hunger issues
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>To pay for the McGovern-Dole program and other issues, Peterson said he made another $1 billion cut in the crop insurance program, bringing the total to $3 billion in addition to $2 billion in savings from shifting the timing of crop insurance payments. Peterson said if crop insurance executives and agents are upset about the cuts, they can blame Republicans “for costing them close to $1 billion over 10 years.” He observed that Republican opposition gave McGovern “the leverage” to force the change. Peterson said the bill will fund the second five years of the 10-year scoring of the crop insurance program through an offset from the energy bill that would cut oil company royalties and tax breaks. Peterson said he achieved savings by ending the renewable energy programs after five years rather than continuing them indefinitely. Peterson said the tax provision, sponsored by Rep. Lloyd Doggett, D-Texas, was scored at $3.2 billion over five years, coming up short of the amount needed for the food stamp funding increase. Budget maneuvering made up the difference, Peterson said.

Democratic leaders believe that their budget maneuvering will bring the bill to passage. It may, but the tax increases may also have raised more concerns than they knew about last night. At least one conservative Democrat has expressed serious concern with the tax increase and there will likely be others:

>Democratic Rep. Bart Gordon of Tennessee raised concerns Thursday about a tax change attached to the Farm Bill that could hit a foreign-owned tire manufacturer with a factory in his district.
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>His concern signals unease among conservative Democrats about the tax alteration that was added at the last-minute to a massive agricultural spending bill that is expected on the House floor this week.
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>Gordon expressed his concerns in a letter to Ways and Means Chairman Charlie Rangel (D-N.Y.), whose panel writes the tax code, telling the chairman “I do not believe that members have had sufficient time to review this proposal and weigh its potential implications. I encourage you to avoid rushing this proposal to the floor without allowing time to fully vet it.”

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