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Business

Study: Tax changes worth billions to businesses

April 11, 2009

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— Three law professors at Kansas University have completed a study suggesting that large U.S. corporations won billions of dollars in tax savings by lobbying Congress to change the tax code four years ago.

Stephen Mazza and two associates spent six months analyzing a provision in the American Jobs Creation Act, passed in October 2004, that allowed corporations to bring overseas earnings back to the U.S. at a 5.25 percent tax rate, instead of the usual 35 percent.

They then looked at how much companies like IBM, Pfizer and Eli Lilly and Co. spent to lobby for the change and how much they saved.

Their figures determined that 93 of the country’s biggest firms got $62 billion in tax savings after spending only $283 million for lobbyists. In total, they said almost 500 companies saved close to $100 billion — or an average 22,000 percent return on their lobbying investment.

“Is this how you want policy enacted?” asked Bill Allison of the Sunlight Foundation, which monitors political spending and lobbying. “Whoever has the biggest access to lobbyists and to Washington insiders gets the tax relief?”

Sheila Krumholz of the Center for Responsive Politics, which also watches lobbying, said the big companies could outspend and obscure other viewpoints.

“Is policy being decided on the merits, or is it being unduly influenced by the money spent?” Krumholz said. “And then do the non-moneyed interests ... lose a valuable seat at the table?”

Lobbyists’ view

Industry officials say they were doing what was right for their employees, customers and taxpayers.

“The government is doing something to you or for you every day here in Washington,” said Dave Wenhold, president of the American League of Lobbyists, which represents lobbyists themselves. “If you don’t have somebody watching out for your interests, it could prove dangerous to your organization.”

Supporters say most lobbying deals with issues that have little financial impact, such as gun control, abortion and education. Focusing on a single tax break affecting billions of dollars in corporate revenue, like the study does, could overstate what lobbyists do, they say.

Mazza acknowledged that tax lobbying may be quite different from other kinds of lobbying, noting that “the payouts are going to be significantly higher in the tax area.”

Others said the tax policy needed to be changed, regardless of whether lobbyists got involved or not. If it hadn’t been changed, the U.S. Treasury would have missed out on billions in revenue as those companies’ overseas profits stayed overseas.

“It doesn’t take a rocket scientist to figure why businesses have an incentive to look for tax savings,” said Pete Sepp of the National Taxpayers Union. “Over $300 billion in profits held overseas were brought back here. ... It sure beats doing a favor for some other country’s economy by letting the money sit abroad.”

Unbridled power

President Barack Obama has pledged, like presidents before him, to impose tougher regulations on lobbyists trying to influence the executive branch. But the industry continues to flourish, receiving $3 billion last year — a 14 percent increase from 2007 — to lobby Congress and the federal government, according to the Center for Responsive Politics.

Lobbyists claim they’re in demand because they get results. They said the need for professional help is even more profound in tax matters because the tax code is so complex.

“If anyone’s to blame for this situation, it’s Congress,” Sepp said. “If lawmakers would give up their habit of using the tax system as a political weapon and making the whole thing simpler, we wouldn’t even be having this debate.”

Allison said it’s not just a question of complicated tax laws, however. It’s that big taxpayers are more likely to get help because they can afford the most powerful lobbyists, he said.

“Any citizen can hire a lobbyist,” he said. “But even if we all banded together, we’re not going to get a huge tax break.”

Mazza said the study doesn’t suggest that the 2004 tax changes were illegal or wrong, although he did refer to studies indicating the companies receiving the break passed along the savings to shareholders instead of hiring more workers.

“The tax break created jobs,” he said, “but it created them in the lobbying industry.”

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