Perk-Heavy Tax Bill for Corporations Gets Nod from House Panel (WTO)

AccountingWEB.com - June 16, 2004 - The House Ways and Means Committee has approved a bill that would give corporations huge tax benefits while repealing a tax break on exports that was ruled illegal by the World Trade Organization. The European Union has levied harsh tariffs on U.S. goods as a response to the Extraterritorial Income export-tax regime. The House bill attempts to swap the now-illegal export subsidies with new tax breaks for business. The bill would lower the top tax rate for U.S. manufacturers from the current 35 percent to 34 percent in 2005 and 2006, and to 32 percent in 2007, the Wall Street Journal reported.

The bill is far-reaching and includes tax breaks for companies to repatriate foreign earnings, a $9.6 billion buyout for tobacco farmers, and benefits for certain businesses—ethanol, ranching, timber, horse-racing, fishing, bow-and-arrow industries and more. NASCAR racetracks, distillers, cruise lines and energy companies would also get tax breaks.

"The package is so weighed down with business favors that it resembles a pork-laden spending bill," the Journal reported.

The bill next goes to the full House and then to the Senate, which approved a different version of the legislation in May. The Senate bill provides tax relief for manufacturers in the form of a deduction, while the House version proposes cutting the tax rate.

Tax experts, including U.S. Treasury officials, are dubious about either approach. They predict a targeted manufacturing break will lead to widespread tax sheltering. "These bills would cause a sea change in the way that we tax business income, and it's a change that I don't think is for the better," acting assistant Treasury secretary Gregory Jenner told a June 11 meeting of the American Institute of Certified Public Accountants, according to the trade journal Tax Notes.

Another difference is cost, and that may be the biggest sticking point in developing a compromise bill. The Senate bill’s long-term cost is zero. The House bill would cost about $34 billion over 11 years.

Meanwhile, the Washington Post reported that many senators have significant personal investments in the manufacturing companies that would be big winners if the bill is passed.

According to 2003 financial disclosure statements, some of the wealthiest members of the Senate held stock worth tens of thousands of dollars in the very companies that would benefit the most from the legislation.

Senate aides said the senators’ investments do not influence their votes. Charles Lewis, director of the Center for Public Integrity, told the Post that it was "hard to point a finger and say it is a conflict of interest" but that the investments create the impression that "they're all peas in the same pod with the same interests."

TRADE:
IMF, World Bank Join Forces with WTO

Emad Mekay

Attempts by global financial institutions to synchronise their policies on developing nations threaten to further entrench a one-sided approach to development, fuel instability and widen the gap between the world's rich and poor, watchdog organisations warned Monday.

WASHINGTON, May 12 (IPS) - Attempts by global financial institutions to synchronise their policies on developing nations threaten to further entrench a one-sided approach to development, fuel instability and widen the gap between the world's rich and poor, watchdog organisations warned Monday.

The alarm comes only a day before two of the world's major wardens of the global economy, the Washington-based World Bank and International Monetary Fund (IMF) were to meet in Switzerland with the Geneva-based World Trade Organization (WTO) to develop a common approach to world economic policies called the ''coherence agenda''.

The meetings will be attended by senior officials of the increasingly controversial bodies, including IMF Managing Director Horst Koehler, WTO Director General Supachai Panitchpakdi and World Bank President James Wolfensohn.

Prospects of the meeting, under the umbrella of the WTO General Council - the organization's highest level decision-making body in Geneva - sends shivers down the spine of critics of the international financial institutions (IFIs), who see their policies as counter productive and in the service of a few rich nations and their sprawling corporations.

''This will limit the room of choices and policy space,'' said Aldo Caliari from the Washington-based Centre of Concern, one of 40 groups that signed a petition opposing the meetings and warning of the possible consequences.

''It's like being forced to shop from one shop - same policies and same goods.''

The IFIs say their meeting will help strengthen the global multilateral trading system, which they consider an anchor of strength and stability in the world economy.

Developing nations will benefit by getting increased market access for their products in rich developed countries, they add.

But analysts here say the record and the structure of the organisations, especially the two Bretton Woods Institutions, the IMF and the World Bank (named for the place in the U.S. state of New Hampshire where they were launched in 1944) bode ill for developing nations.

"When you understand how much power the industrial countries hold in the governance of the Bretton Woods institutions, you realise why the trade agenda supported by these institutions tends to be aligned with the negotiating interests of those same countries within the WTO," said Caliari.

The voting structures of the IMF and World Bank are heavily biased towards rich countries. Their leaders, for instance, are chosen through processes open only to U.S. and European citizens.

The IMF and the Bank have for years been peddling trade liberalisation, deregulation, privatisation and budget austerity to developing countries, and the results, critics say, are disappointing.

Feverish privatisation urged by the Bank and the Fund, especially of public services like water and utilities, has smoothed the way for foreign corporations to supply these services and introduce commercial pricing systems, which have often led to higher rates for poor citizens, jeopardising their access and pushing them further into poverty.

''Economies of developing countries have been characterised by slow and erratic growth, increased instability and rising income gaps,'' said the groups in their Monday statement.

''With the WTO, such misguided and failed policy reforms are being progressively locked-in through trade law backed by the threat of economic sanctions through its dispute settlement mechanism.''

Under the new distributions of roles to be discussed Tuesday, the IMF and the Bank would help ease the way for full liberalisation of trade by offering ''technical and financial support''.

The Washington-based organisations would ''assist'' developing nations to manage lower revenues because of reduced tariffs, withstand a period in which their trade preferences in industrialised nations are eliminated, secure funds to support increased trade and, finally, help create export oriented economies.

The IMF and the Bank would also raise the profile of trade in borrowing countries' Poverty Reduction Strategy Papers (PRSP) and Country Assistance Strategies (CAS), documents developed with the support of the two lenders that function as borrowers' economic roadmaps.

In return, the IMF and World Bank will receive observer status in the trade negotiations committee, which handles individual negotiating issues at the WTO and its subsidiary bodies, coupled with a role at the WTO secretariat, a body often accused of bias on disputes between rich and poor countries.

Critics say these plans should cause even more concern.

They say so-called ''technical assistance'' is really one way to force-feed the same policies on developing nations rather than give them the tools to develop independent views and, possibly, development options.

''Technical assistance is being used as a political tool to win support for a 'development agenda' that is heavily disputed in the WTO,'' said Shefali Sharma from the Geneva office of the Institute for Agriculture and Trade Policy in a statement.

''No amount of technical assistance in implementing policies that, in effect, handicap and shackle developing countries in the WTO can improve gains towards development.''

Cooperation between the three bodies is not new. The WTO director general often attends meetings of the IMFC - the assembly of the IMF and Bank governors - and of the development committee, the senior decision making body of the institutions.

Most recently, he attended the IMFC meeting in April 2003 and briefed finance ministers on the Doha trade negotiations and work programme, according to WTO documents.

The IMF and the World Bank have also been paying greater attention to trade issues in the past few years, both in the course of their regular country work and research papers. Documents have been flooding out of the two organisations in support of ''free'' trade.

In 2002, they issued a joint staff paper on "Market Access for Developing Countries' Exports", which examined patterns and costs of restrictions and distortions on developing countries' exports. (END)

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