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House transportation bill contains hidden nuggets

By Dan Morgan
Washington Post

House Republicans, under fire from the White House for writing a multi-year transportation bill that exceeded President Bush's spending limits, quietly tucked billons of dollars worth of new tax breaks for business into the same bill shortly before the House passed it overwhelmingly last week.

The tax provisions, which were added just before the bill went to the floor on Friday, provide relief to big companies from the alternative minimum tax (AMT). They increase from $25,000 to $100,000 the amount of capital improvements – including investments in computer software – that businesses can write off as annual expenses.

The corporate AMT, which was enacted as part of a broad 1986 tax reform, is intended to ensure that all corporations – even those with extensive deductions – pay some taxes. However, softening the impact of that law has been a top priority for some of the nation's biggest companies, including auto manufacturers and computer firms.

Among other things, the changes approved by the House would allow multinational companies with extensive offshore operations to fully use foreign tax credits to offset their tax liability.

Lobbyists for small-business groups had fought for the expanded write-off provisions, which would allow a company to deduct the costs of certain improvements and equipment in a single year rather than depreciate them over a number of years.

The combined five-year cost of the new tax breaks would be $12.8 billion, according to Congress's Joint Committee on Taxation.

But it was unclear whether many House members were aware they were voting on the business tax breaks when they approved the $275 billion, six-year transportation bill by a vote of 357 to 65. The tax breaks are unrelated to the transportation measure, which funds new highways, mass transit and safety programs.

The House Rules Committee, which reflects the policy of the House Republican leadership, ordered that the tax provisions be included in the overall bill and adopted without a separate vote.

"This continues a pattern of increasing spending and decreasing taxes," said Robert Bixby, executive director of the Concord Coalition, a nonpartisan group that advocates fiscal responsibility. "It was pretty astonishing. I was expecting irresponsibility [in the transportation bill] on the spending side, but I found it on the tax side as well."

Keith Ashdown, vice president of Taxpayers for Common Sense, a nonpartisan budget watchdog group, said the legislation could "push us further into deficit." The House version of the bill must now be reconciled with a $318 billion Senate bill containing at least $3.2 billion in new tax breaks, including repealing the surtax on "gas guzzler" cars, and other taxes on the fishing and retail liquor industries.

White House budget officials warned congressional leaders last week that they would urge the president to veto a final transportation package if it exceeded the president's spending limit of $256 billion.

The White House has expressed little concern, however, about the last-minute tax riders on the bill. A senior congressional budget official noted yesterday that the president's own budget proposed revisions in the expensing rules for small businesses that go well beyond those in the transportation legislation.

These would have gone into effect in 2006 and cost an estimated $33.8 billion through 2013, according to the official, who asked not to be identified by name because he does not normally serve as a spokesman.

To reduce the apparent costs, the House legislation envisions phasing out the expensing rules in 2008 after a tax savings to businesses worth $10.9 billion. The AMT reforms would be worth $1.9 billion through 2008. But under the legislation, they would continue and would net big companies about $6.7 billion over 10 years.

Asked to comment on the tax riders in the bill, deputy White House press secretary Trent Duffy said the White House and Treasury Department were reviewing the package. But he added: "It's safe to assume that the president will support the items that were in his budget."

Meanwhile, White House budget officials stuck to their criticism of the spending in the House transportation measure. They contended House leaders had understated the cost of the bill by about $9 billion, and had opened the door to increasing the spending in 2006.

The federal highway aid program would be halted in 2006 under terms of the bill unless Congress redressed grievances of 28 states that say they pay more in federal gasoline taxes than they get back in federal assistance for road building and mass transit.

The Concord Coalition's Bixby also charged that the House bill was full of "blatant gimmicks" that assume the future phasing out of tax breaks in order to produce bookkeeping "savings" and reduce the apparent cost of the legislation.

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