Business reps began the year on an odd note: At the behest of White House politico Karl Rove, they were pressed to support a tax cut that conspicuously omitted business preferences. The payoff: Cuts for Big Business would follow in a second bill. Now, President Bush has his $1.35 trillion tax bill in hand, but Republicans' loss of Senate control has complicated Corporate America's drive for a promised package of business incentives.
CEOs could still gain some goodies this year, mostly by attaching provisions to a few high-priority bills that don't have anything to do with tax cuts. The two best bets: a Democratic-backed plan to hike the minimum wage and a bipartisan drive to extend the life of expiring tax preferences for exporters and others.
For the most part, though, business priorities are on the back burner. These include new tax benefits for companies that purchase equipment, a broad reform of tax rules for U.S. multinationals, making the R&D tax credit permanent, and capital-gains tax cuts. In the new Democratic Senate, issues such as patients' rights and a prescription drug benefit will take priority over tax-cutting.
Democratic rejiggering isn't the only obstacle. The sheer size of Bush's cuts has complicated the plans for business. On paper, the President's proposal is worth $1.35 trillion. But Congress left out the final-year cost and failed to fix an alternative minimum tax that could slash the benefits for 30 million taxpayers. As a result, its real cost will top $2 trillion over 10 years. A planned Pentagon push for at least $30 billion a year in additional spending could drain whatever is left. Says Philip J. Wiesner of KPMG: "The question is whether there is going to be any money left for a corporate [tax] bill."
The biggest loss for the business community may be a delay in the drive for faster write-offs of capital equipment. With a price tag of up to $400 billion, the plan looks too costly. It will be pushed into the future.
In place of sweeping revisions, business supporters will have to pick carefully. Their first opening will be when Democrats try to hike the minimum wage. Some Republicans would back such an effort--if it included small-business tax cuts. That might mean bigger deductions for health insurance purchased by the self-employed, for example. Lawmakers may also try to raise the deduction for meals and boost the amount business can write off for office equipment. "I wouldn't be surprised to see $40 billion to $50 billion" in new breaks over 10 years, says Clint Stretch of Deloitte & Touche.OVERSEAS. Business reps will get another shot when lawmakers move to extend a handful of expiring tax breaks. The most important: a provision that allows some companies to defer paying tax on overseas investment income. This could save $7 billion for banks and other financial-services companies, as well as U.S. manufacturers that finance their own exports.
Despite chilly prospects in 2001, the Gucci Gulch set still has three years of Bush rule to make its case. If the economy rebounds, funds would be freed up for more tax relief. But early estimates by the Congressional Budget Office suggest no looming windfall, pointing to extended trench warfare for lobbyists.
Of course, none of this is to suggest that CEOs are crying over Bush's individual cuts. The breaks offer benefits for upper-income taxpayers and, execs hope, will light a fire under consumer spending. But their joy is tempered by the realization that when it comes to their own companies, tax relief could be a long-term proposition indeed. Gleckman covers tax policy from Washington, D.C.