By Siobhan Hughes
WASHINGTON--It was supposed to be a hearing about manufacturing
and how to lower the 35% U.S. corporate tax rate but by the time
the House Ways and Means Committee hearing ended, factory
executives had been drawn into a partisan fight over whether U.S.
companies are paying their fair share of taxes.
The Thursday hearing underscored the challenges facing
Washington as it starts on a tax overhaul. It also showed how
bipartisan efforts to begin a revamp of the tax code are getting
swamped by a larger election-year tax fight between Republicans and
Democrats.
"I think we should resist using this hearing to have an overall
discussion as to a very basic disagreement," said a frustrated Rep.
Sandy Levin of Michigan, the top Democrat on the committee. "I
thought the focus was the importance of manufacturing."
But the executives, from companies including Ford Motor Co. (F)
and Corning Inc. (GLW), kept getting tugged back into thornier
issues. The executives generally threw their weight behind a
proposal from House Ways and Means Committee Chairman Dave Camp
(R., Mich.) to shift to a system in which taxes are paid in the
jurisdiction in which income is earned. That put them at odds with
U.S. President Barack Obama and his Democratic allies, who are
against a "territorial" system.
"How does it create jobs in the United States if U.S. businesses
decide to go overseas and pay no taxes to the United States?"
complained Rep. Charlie Rangel (D., N.Y.)
The executives testified in favor of lowering the corporate tax
rate to 25%, which is a key element of the Republican platform. The
Obama administration wants a 28% corporate rate, with a special 25%
rate for manufacturers. Neither side has been very specific about
how to pay for lowering the rate, though there is a general belief
on both sides that credits and deductions will have to be trimmed
or eliminated.
"I don't think it's time quite yet to choose which ones stay and
which ones go," testified Ford chief tax officer Diane Dossin, who
declined to say which tax breaks her company would give up in
exchange for lowering corporate tax rates to 25%. "When that time
does come, they will be all on the table and we will want to be at
that table."
Mr. Rangel lit into the executives, saying "when all of you get
together at the country clubs and the cocktail parties, you know
what it is that stops this Congress--Republicans and Democrats
alike--from not taking up this sensible reform that has us at the
highest corporate tax provisions in the entire world," he said. "Is
it a question that everyone wants to protect their interests?"
That riled Rep. Geoff Davis (R, Ky.), who said, "The only club
that my friends belong to is Sam's," referring to the
membership-only retail warehouse stores.
Rep. Sam Johnson (R, Texas) prompted witnesses to talk about the
role played by U.S. government in helping business, aiming to draw
a contrast with Mr. Obama. "I'm sure you've heard by now President
Obama say that if you've got a business, you didn't build that,
somebody else made that happen. Mr. Hardt, did somebody else build
your business?" (The president's argument was that business people
need the infrastructure provided by government in order to
succeed.)
Replied Ralph Hardt, the president of Jagemann Stamping Co.,
"Government can assist with certain incentives." But he said that
"we took the majority of the risk, that's a fact."
Rep. Pat Tiberi (R, Ohio) prompted one witness to talk about how
business income of more than $250,000 reported through an
individual return was not the same as actual household earnings,
taking a shot at Mr. Obama's call for the Bush tax cuts to lapse
for earnings over $250,000. "It's not like you're pocketing it and
saving money to go buy an island in Hawaii," Mr. Tiberi said.
"It's not your salary," agreed Kim Beck, the president of
Automatic Feed Co. "It's what your company made. Which means that
out of that $250,000 that goes to taxes, you may take a salary of
50, 60, 100 thousand dollars."
--Write to Siobhan Hughes at siobhan.hughes@dowjones.com
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