Lobbyists tout tax breaks as an incentive for budget cuts

Mindful of budget reconciliation’s uncertain future, business lobbyists are reminding Congress that reconciliation’s bitter pill of spending cuts will be followed by the political sweetener of extended tax cuts on capital gains and dividends.

The Securities Industry Association (SIA), which represents investment firms both large and small, formed a lobbying coalition earlier this year to keep capital-gains and dividend cuts on the legislative radar. The Alliance for Tax Fairness and Growth, as it is known, boasts a 43-member slate that includes such unlikely allies as Verizon, the American Gaming Association and DTE Energy, and has made strategic ad buys in recent weeks as the reconciliation process ran off its smooth course.

“All companies have seen the benefit that this gives investors,” said Richard Hunt, SIA’s senior vice president of federal policy. Before the capital-gains and dividend rates were sliced to 15 percent in 2003’s tax-cut package, Hunt added, “people had called this a jobless recovery. You can’t say that anymore. This has forced companies to give dividends to their investors. Instead of a CEO-driven dividend, it’s a stockholder-driven dividend.”

That plea for continued market populism, with an emphasis on the near-record tax revenues that unexpectedly trimmed this year’s deficit, is at the heart of the Alliance’s lobbying strategy. But despite positive economic indicators to tout — particularly a U.S. gross domestic product still accelerating after two major hurricanes — coalition members are all too aware that a stumble on reconciliation’s program cuts could threaten the tax-cut extensions once considered a sure thing.

“If reconciliation gets off track, we will certainly work with [Senate Finance Committee] Chairman [Chuck] Grassley [R-Iowa] as enthusiastically as we can to make sure these provisions don’t get lost. But, given reconciliation protections and the value of 51 rather than 60 votes, we certainly hope it doesn’t get taken off the reconciliation path,” said Jade West, top lobbyist at the National Association of Wholesaler-Distributors, another Alliance member.

The Alliance uses Ketchum as its home base for frequent coordination meetings, listing the PR agency’s address and phone number on its website. Ketchum coalitions strategist Natalie Wyeth declined to reveal the size of the Alliance’s advertising budget but noted that Merrill Lynch has also placed its own ads on behalf of extending the corporate tax breaks.

While they continue to hope for permanent capital gains and dividend cuts, corporate lobbyists are pushing hardest for a two-year extension past the current expiration date of 2008. Investment decisionmaking traditionally projects three to five years into the future, meaning more uncertainty for the big stock buyers who propel market growth should the cuts not pass this year.

House Majority Leader Roy Blunt (R-Mo.) told reporters yesterday that the tax reconciliation package likely would reach the House floor during the week of Nov. 14, after the spending reconciliation bill consumes the week of Nov. 7. If Senate Majority Leader Bill Frist (R-Tenn.) holds to his vow to adjourn the upper chamber before Thanksgiving, however, the capital gains and dividend tax extensions would not reach conference committee before 2006.

“I’m confident,” said Daniel Clifton, a lobbyist at the anti-tax giant Americans for Tax Reform (ATR). “There are going to be some quirks in conference because the packages are difficult. Senators are going to take a hard vote and then come back and cut taxes.”

Clifton is close to completing an official separation of his grassroots investor group, the American Shareholders Association, from ATR, its longtime sponsor. Clifton’s past and future homes both belong to the Alliance, and he contends that extending capital-gains and dividend cuts would be an act of benevolent corporate governance.

“There were all these corporate scandals going on” before the 2003 tax cuts passed, Clifton said, invoking the dark days of Enron, WorldCom and other Wall Street collapses. “They were fudging statements. But a dividend check doesn’t bounce. Investors now have certainty that a company is in good health, that they have the ability to make the revenues they promised.”

Setting the capital-gains and dividend rates at their low and equal level, Clifton said, has done more to protect and encourage investment than even the Sarbanes-Oxley Act.

Few Democrats on the Senate Finance Committee, however, are likely to agree. A recent study from the liberal-leaning think tank Center for Budget and Policy Priorities pointed out that more than 75 percent of this year’s corporate tax cuts will benefit the wealthiest 3.3 percent of U.S. households, sparking Clifton’s group to release a point-by-point refutation.

The threat of a filibuster if the rate cuts are not taken up through reconciliation is but one potential pitfall the lobbyists face. They also are battling post-Katrina deficit fatigue and a lingering reluctance from some lawmakers about extending cuts that are not immediately expiring.

“We knew there was going to be opposition out there. That’s why we got this alliance created and started,” Hunt said. When it comes to reconciliation, “there’s plan A, plan B, plan C and plan D. We’re probably on plan C right now.”