WASHINGTON-Telecom and high-tech sectors, beaten down and eager for an economic revival, last week found themselves forced to pick and choose among competing tax-cut packages in Congress after the GOP-led House and Senate abandoned the White House plan.
Just like that, with votes to be counted and political careers on the line, tax-cut legislation was the hottest item in town for an industry consumed just a week earlier with telecom reconstruction in Iraq-an issue that’s now a distant memory.
While the shift in emphasis from overseas events-war and reconstruction-to the domestic front-the economy-carries political risks for even a popular president, the renewed focus on jobs and industrial productivity benefits wireless carriers and manufacturers in need of a sustained economic recovery to get new products and services into the palms of American consumers.
Lobbyists found themselves in the awkward position of gravitating toward a $550 billion taxcut plan crafted by House Ways and Means Committee Chairman William Thomas (R-Calif.), without making it appear they were breaking with a pro-business president who is big on loyalty.
The House passed the Thomas plan last Friday.
“We like the Thomas bill best of all. We like the president’s plan, but we like Thomas’ version of it,” said Taryn Lynds, a spokeswoman for AeA, formerly known as the American Electronics Association. AeA’s members make electronic components and computer software for the wireless industry.
In addition to a reduction of the capital gains rates in the House bill, AeA flagged other provisions in the Thomas growth plan as particularly helpful to high tech:
c Establish a 50-percent depreciation `bonus’ through 2005, allowing businesses to immediately write off half of their qualifying capital investments
c Extend for two years the net operating loss provision enacted under a 2002 stimulus bill, providing a five-year carry back period for net operating losses generated in taxable years ending in 2003 and 2004
c Increase tax-code small business expensing from $25,000 to $75,000 through 2005.
AeA also asked that other legislation-which for one year would reduce the tax rate on foreign earnings gained by U.S. companies-be included in the House tax legislation.
How did the Information Technology Industry Council deal with the dilemma of backing a GOP-led House tax-cut bill that veered from a Bush administration plan whose centerpiece was the elimination of double taxation of dividends?
Simple. On May 2, the day President Bush told California his tax-cut plan would help Silicon Valley, ITIC issued a press release praising the Bush economic growth plan, while urging support for a House plan which the trade group said is based largely on the Bush proposal.
“We don’t find that mutually exclusive,” said Ralph Hellmann, senior vice president of government relations at ITIC. “We support the Bush plan. We support the Thomas plan.”
Still, that House and Senate tax-cut bills differed in some significant ways from Bush’s plan was an embarrassment for the White House.
“This is the best bill for manufacturers that’s ever come to the House floor in my 20 years here,” said Rep. Nancy Johnson (R-Conn.).
Democrats blasted the House bill, claiming it would only expand the already mushrooming budget deficit and national debt. They also tried to turn the tables on the Bush administration, arguing the House tax-cut plan takes money away from fighting terrorism and homeland security-two signature issues for Bush that keep his approval ratings high.
House Democrats were particularly incensed that the GOP leadership limited debate on a bill of such magnitude to one hour. “We’re fighting for democracy in Iraq, but we don’t have it on the House floor,” said Rep. Eliot Engel (D-N.Y.), a member of the House Commerce Committee.
But the Thomas bill, while preferred by industry to tax-cut packages championed by the Bush administration and Senate Finance Committee Chairman Charles Grassley (R-Iowa), was by no means perfect in the eyes of the nation’s top trade group for telecom manufacturers.
On the eve of the House debate on the Thomas tax-cut legislation, Telecommunications Industry Association President Matthew Flanigan sent a letter to House Speaker Dennis Hastert (R-Ill.) to raise concerns about a dividend tax reduction clause that Flanigan said discriminates against U.S. subsidiaries of non-domestic companies. That category includes Nokia Corp., Nortel Networks Ltd., Siemens AG and Alcatel Corp.-all major wireless suppliers.
“We believe this could have a chilling affect on our short-term and long-term trading relationships,” said Flanigan. “By limiting the lower rate on dividends to `domestic companies,’ the bill would unfairly tax investors and employees who own stock in non-domestic multinationals. These non-domestic companies that list their stocks on the U.S. market-many of which have substantial U.S. operations-accounted for 26 percent of the U.S. exchanges’ market capitalization last year.”
A less ambitious tax-cut bill in the Senate Finance Committee initially included a similar provision as the one objected to by TIA, but the provision apparently was changed to industry’s liking just prior to passage by the panel last Thursday. The Grassley bill, headed to the Senate floor this week, left some lobbyists dumbfounded after lawmakers raised taxes-some that apparently will be borne by industry-to offset tax cuts desired by Bush.
Mobile-phone carriers, for their part, are pressing for tax treatment for cell sites that is on par with other technology gear.
“We’re for any vehicle that has a shot of going someplace, and that can take the accelerated cell site depreciation bill with it,” said Steven Berry, senior vice president of government affairs at the Cellular Telecommunications & Internet Association. The cell site measure does not appear to be in play in tax-cut legislation.
It was also uncertain whether a bill allowing full expensing of security equipment purchases was included in the House bill.
