The Art of Policy January/February 2005

Redheaded Eskimo

The corporate tax bill—an explanation

Something that confirms all fears and many conspiracy theories about government is finding out what our elected representatives would put into law if they could. Especially if they have an item of must-pass legislation trapped like a foie gras goose and are able to force-feed it with as many special-interest provisions as they like. The American Jobs Creation Act of 2004—an alteration of the U.S. tax code that Congress was required to make to bring the United States into compliance with World Trade Organization agreements—is such an item.

For more than thirty years Congress used various aspects of the tax code to subsidize American exports (tax breaks, tax loopholes, and tax credits being the modern way of handing out boodle and swag). This was very good for some American exporters and not very good for America. Congress's own Congressional Research Service notes that "the traditional economic analysis" is that export tax benefits "reduce overall U.S. economic welfare because at least part of the tax benefit is passed on to foreign consumers in the form of lower prices."

Foreigners should have been grateful. They weren't. The World Trade Organization ruled that U.S. tax legislation was in violation of WTO subsidy rules and gave the European Union permission to impose retaliatory tariffs. The EU began, last March, with a five percent penalty duty on selected American products, the levy to increase by one percentage point a month until America changed its laws. Targeted were leather goods, toys, sports equipment, appliances, and, especially, precious stones and jewelry. Perhaps the jolies filles of Brussels have become too fond of Lil' Kim-style bling. Congress had to act lest the watch-strap, Barbie, skateboard, George Foreman rotisserie, and cubic-zirconium sectors of the U.S. economy collapse in an election year.

Congressman Charles Rangel (D- NY) succinctly characterized the bill: "It stinks to high heaven." It passed 280 to 141 in the House and 69 to 17 in the Senate.

Title I of the American Jobs Creation Act repeals the export subsidies in question. But the legislation continues for another 626 pages.

American corporations get a one-year tax holiday during which they can repatriate all overseas profits at a tax rate of 5.25 percent instead of 35 percent as long as the money is used to create jobs. (CEO hiring of personal Pilates instructors counts!)

Moviemakers are rewarded with tax write-offs if, when seeking a location that looks like America, they seek it in America.

Builders of U.S. warships can defer taxes on their profits until the ships are complete. ("All done now, Secretary Rumsfeld, except for the tippy-top of the mast. We'll get to that first thing in 2054.")

Among many, many other hornswoggles is tax relief for nascar track owners, ceiling-fan importers, archery-equipment purveyors, and fishing-tackle-box manufacturers. Plus, "sonar devices suitable for finding fish" are "not treated as sport fishing equipment." Meaning, I guess, that they can be deducted as office equipment.

On Capitol Hill, legislation carefully tailored to the needs of a tiny constituency is sometimes called a "Redheaded Eskimo." He is in the Jobs Creation Act under "expenses paid by certain whaling captains in support of Native Alaskan subsistence whaling."

An earthier term can be used to describe the legislation. It, too, appears in the act. "Agricultural livestock waste nutrients" are covered by the "expansion of credit for electricity produced from certain renewable resources."

And, in an apparent payoff to the WTO for providing Congress with this wonderful lawmaking opportunity, there's "exclusion of income derived from certain wagers on horse races and dog races from gross income of nonresident alien individuals."

The only part of the Jobs Creation Act that attracted much public ire was the $10.14 billion tobacco-grower buyout. But the outcry was about the failure to put tobacco sales under the control of the Food and Drug Administration, so that the FDA could eliminate tobacco abuse the way it has eliminated the abuse of methamphetamines and OxyContin. (Next, the $100 billion McDonald's-franchise buyout to eliminate obesity.)

More deserving of reprobation was Congress's passing the bill off as "revenue neutral." This was accomplished mainly by making parts of it "temporary"—a tactic known in the nongovernmental world as lying.

The House-Senate Joint Committee on Taxation produced a sheaf of charts showing that the bill's $8.678 billion in costs from 2005 to 2009 will be balanced by the bill's $8.679 billion in savings from 2010 to 2014. By this logic a Friday-night drunk resulting in a hangover too severe to permit Saturday-afternoon mall shopping gives me revenue-neutral alcoholism.

If I were a congressman who had voted for the American Jobs Creation Act of 2004, I'd claim it was forced on our country by a sinister international organization. I'd announce that the face-pierced anti-globalization window-busters and the gun nuts with skinny sideburns and New World Order paranoia were on to something. And if the voters in my district ever actually read the bill, I'd hope that one of those UN black helicopters would come get me, quick.

Presented by

P. J. O'Rourke is a correspondent for The Atlantic. His most recent book is Peace Kills.

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