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 email@example.com
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