Politics & Policy

Lobbyists Mobilize to Preserve Tax Breaks


(Corrects with information about Livingston no longer representing Raytheon in the second paragraph.)

U.S. lawmakers in both parties are seriously weighing proposals that could shave from $4 trillion to $6 trillion from the U.S. budget over the next decade. For America's lobbying class, that's the equivalent of a Category 5 storm warning. So the pinstripe brigade representing interest groups as diverse as ethanol producers, defense contractors, and hospital chains has descended on the nation's capital in recent weeks to ensure their tax breaks and subsidies are spared. Some 2,000 real estate agents parachuted into Washington the week of May 8 to defend the tax deduction homeowners receive on mortgage interest. Thousands of farmers who want to forestall cuts in agriculture subsidies have also been buttonholing their representatives. "I can't remember anything close to this," says Howard Marlowe, president of the American League of Lobbyists in Alexandria, Va., who during three decades as a Washington lobbyist has seen his share of budget battles.

One lobbyist making the rounds is Bob Livingston. He represents Northrop Grumman (NOC), a defense contractor that has raised its deflector shields hoping to repel cuts to defense programs dear to the company. He earlier represented Raytheon (RTN).

In Livingston's earlier incarnation as chairman of the House Appropriations Committee, the Louisiana Republican helped negotiate the landmark bipartisan budget agreement of 1997. That deal aimed to cut $204 billion over five years and was negotiated when the national debt was $5.4 trillion. Today, America's tab is approaching the statutory limit of $14.3 trillion, putting the U.S. at risk of default. "The earlier debate didn't have nearly the same impact as the discussion today," says Livingston. "The difference is the magnitude of the problem."

Linked to a vote to raise the debt limit, negotiations on a bipartisan budget pact are getting started between Republicans who want to overhaul Medicare and Medicaid while cutting hundreds of programs and an Administration seeking smaller spending cuts and tax increases. At the same time, the bipartisan "Gang of Six" senators is trying to craft an overarching debt reduction proposal, even after one member—Senator Tom Coburn (R-Okla.)—quit the group on May 17.

While a final deficit reduction plan may be months away, Washington's lobbying horde is wasting no time. Growth Energy, a group representing ethanol producers, is battling proposals to end the 45 cents-a-gallon tax credit for makers of the fuel, which last year cost the government about $6 billion. If the program is cut, ethanol producers have a fallback position: They want a new tax break to encourage use of vehicles that operate on corn-based fuel and the so-called flex-fuel pumps they need. "We can't have that go away until we have another form of access in the market," says Chris Thorne, a spokesman for Growth Energy.

The Service Employees International Union opposes cuts to Medicare and Medicaid, which would affect about 1.1 million nurses and other health-care workers the union represents. Union members visited lawmakers' home-state offices during the April recess, and five SEIU lobbyists have been meeting with legislators in Washington to urge them to raise taxes to close the budget gap. "We think that rich folks and American corporations have gotten off too easily in some of these proposals," says Peter Colavito, the SEIU's director of government relations.

Some lawmakers favor scaling back agriculture subsidies at a time when crop prices are high. The House passed a Republican budget that would cut $30 billion from agriculture programs over a decade. Farmers say they've already endured billions of dollars' worth of cuts to farm programs and that the pain should be spread across additional industries. "We will give our proportionate share, but it's time for everybody else to cough up some money," says Chandler Goule, a National Farmers Union lobbyist.

Amid the uncertainty, some groups are taking a hands-off approach—at least for now. The U.S. Chamber of Commerce and the National Association of Manufacturers have drafted a letter to congressional leaders in both parties, urging them to raise the debt limit without suggesting specific budget-changing approaches. Businesses should refrain from fighting specific cuts because that complicates efforts to reach a budget deal, says R. Bruce Josten, the Chamber's executive vice-president: "If everybody in the business community starts saying, 'Yeah, raise the debt limit, but don't touch this and don't touch that, and don't do this and don't do that,' you'll never get to an outcome."

The Chamber's view stands in contrast to other business interests in Washington. After agreeing to $155 billion in Medicare and other cuts in last year's health-care law, the hospital industry opposes further reductions in what it gets from federal health entitlement programs. About 1,000 hospital executives in April pressed their case with lawmakers, and the group is drawing on its 25 registered lobbyists to help push back on such proposals as turning Medicaid into a block grant to states. "We've already made some serious sacrifice and stepped up to the plate," says Richard J. Pollack, executive vice-president of the American Hospital Assn.

For the American Petroleum Institute, the lobbying has already paid off. On May 17 the Senate blocked a measure that would have repealed $21 billion in oil and gas subsidies over 10 years. API Chief Executive Officer Jack N. Gerard, who met with legislators in advance of the vote, said of the legislation: "It's not consistent with what we need to create American jobs and produce American energy."

The bottom line: Nurses, farmers, defense contractors, and others are fighting to protect tax breaks and programs dear to them.

Litvan is a reporter for Bloomberg News in Washington.

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