Coalition pushes corporate tax cut

A coalition led by the hotel, financial services and energy conglomerate Loews Corp. is lobbying lawmakers to slash the corporate capital gains rate as part of any stimulus package, saying the measure would boost revenues to the federal government.

The coalition, called America Gains, argues that temporarily dropping the rate from 35 percent to 15 would spur companies to offload buildings, plants and machinery that they otherwise would hold to avoid paying the tax. Tempted by the lower rate, companies would want to sell these assets sooner rather than later, unleashing a burst of economic activity and raising receipts for the IRS.

{mosads}“We think it would be good as a way to pick up the economy,” said Ed McClellan, a lobbyist for the coalition who served as tax counsel for the Republicans on the Senate Finance Committee.

A potential stimulus package is providing an opening for coalitions and trade groups that are able to position long-standing priorities as measures that would lift the economy. America Gains has an added arrow in its quiver: the argument that its proposal would cost nothing and potentially pay for other measures.

The proposal would raise $11.6 billion over five years and $3.2 billion over 10 years, according to the results of an analysis by PriceWaterhouseCoopers (PWC), which has been contracted to lobby for the coalition. The measure’s potency decreases over time because the tax cut would be in effect for only three years, prompting companies to sell assets within that window rather than selling them later, PWC concluded.

The positive budget score could add to the appeal of the proposal, according to McClellan. “We’re in a pay-go environment and people are searching for ways to raise revenue.”

The coalition has been shopping the proposal as a tool to stimulate the economy to lawmakers and administration officials. Democrats could unveil a stimulus bill as soon as next week, and President Bush may propose his own package in the State of the Union address on Jan. 28.

McClellan said the proposal has stirred bipartisan interest from members of both tax-writing committees and could be introduced as legislation soon.

Former Rep. Bill Archer (R-Texas), now a lobbyist at PWC, is a member of the lobbying team. America Gains has also contracted lobbyist Sam Geduldig, the former House GOP coalition director, to broaden the support for the measure in the business community.

Formed last spring, the coalition has attracted eight companies, which McClellan declined to name. Among lobbies, the National Association of Manufacturers (NAM) and the U.S. Chamber of Commerce support the proposal.

McClellan said the coalition would seek to limit the measure such that the lower rate would only apply to companies that have held assets for a long time and in cases where the sale is likely to have been triggered by the temporary relief.

For example, the measure would only allow the lower rate for gains that exceed 120 percent of a company’s average capital gains over the past five years. “We do not want this thing to be gamed. We want this to be the purest form of economic stimulus it could be,” McClellan said.

The coalition argues that the proposal will have a threefold effect on the economy: raising revenue for the government; moving assets to owners who will put them to better economic use; and unleashing capital for the sellers that can be reinvested in their core lines of business.

Some economists question whether such a proposal would really stimulate the economy. An expert at the liberal-leaning Center on Budget and Policy Priorities, Aviva Aron-Dine, disputed that a corporate capital gains rate cut would spur companies to invest more and create jobs in a recession.

“It’s not really about how much cash they have on hand, it’s about their anxiety that people will buy their product,” she argued.

A report released Tuesday from the Congressional Budget Office on options to stimulate the economy underscored that point, concluding that cutting taxes on businesses “typically does not create an incentive for them to spend more on labor or to produce more, because production depends on the ability to sell output.”

Politically, however, the proposal may be an easier sell. Geduldig argued that the measure would help get the stimulus package signed into law. The package would need to be bipartisan and the rate cut would attract Republican support, he said: “They’re not going to take every Republican initiative, but they need to take some.”

Calling the proposal “a sweetener to attract Republicans,” he added, “it has the benefit of actually providing stimulus to the economy and at the same time it does not add to the budget deficit.”