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Hollywood’s hand out in D.C.

Showbiz tax break caught in political crossfire

WASHINGTON — The movie biz has spent the past five years trying to persuade Uncle Sam to do something to coax film production back to this country and give the industry some tax relief.

With one of their own in the California governor’s mansion and Schwarzenegger’s top lieutenant, Rep. David Dreier (R-Calif.), pulling the strings back in Washington, filmmakers are starting to be optimistic that their time has finally come.

But just when Hollywood has a real shot at getting its wish, the issue has been caught in the political crossfire over $87 billion in new spending for the war in Iraq and a lobbying battle between domestic manufacturers and some of the largest multinational corporations in the world.

Subsidies may end

Congress is working to end export subsidies worth $5 billion a year to U.S. businesses, and lawmakers have to wrap up that work by the end of the year in time to avert a trade war with the European Union. Key lawmakers are using the opportunity to pass a raft of corporate tax breaks — most of which would benefit domestic companies but several that would give tax relief to earnings from overseas operations.

As in any must-pass legislation, the legislation is getting loaded with pet projects and business lobbyists are scrambling to protect their interests in the overall bill. This time, heavyweights such as Boeing and Caterpillar are butting heads with Coca-Cola and General Motors — but showbiz is throwing plenty of punches too in a fight to find ways to make up for billions in losses they face in the repeal of the current export system and persuade filmmakers to make their films in the U.S.

Two weeks ago the Senate Finance Committee inserted language deep into a bill that would give a special tax break to films and TV shows made in this country. Another provision would allow the entertainment industry to save tens of millions in depreciation savings.

Movies and TV shows would be eligible for a credit as much as $20 million if 75% of wages doled out for the production are for services performed in the U.S. The other provision would end a longtime dispute with the IRA over how the industry depreciates participations and residuals paid to actors and directors.

Spending fight looms

But the Hollywood bennies now must survive a rocky end-of-the-session tug of war over spending priorities in tight times and partisan sniping over corporate welfare and the best way to boost the economy and retain jobs.

The Senate has acted by simply replacing the export subsidies with a net tax cut of the same amount for all U.S. manufacturers. But the road is more difficult in the House where Ways and Means chairman Bill Thomas (R-Bakersfield) appears determined to push a bill that would also benefit corporations with considerable overseas operations and would increase the deficit by $128 billion over 10 years, by some estimates. Even some tax-slashing Republicans are having a tough time rationalizing extra tax cuts right now.

Thomas rescheduled an attempt to pass the bill out of committee originally scheduled for today because he didn’t have the votes and lawmakers on both sides of the aisle are watching to see which pet projects get trimmed.

Friends on Capitol Hill

Hollywood lobbyists are hopeful that their tax breaks will stay in the bill and they have some powerful allies on the Hill helping them make their case. Even though Dreier’s been busy with the Schwarzenegger transition effort, he’s keeping a keen eye on the bill. He has spent the last few months working with Speaker Dennis Hastert (R-Ill.) and Rep. Mark Foley (R-Calif.) on the runaway production provisions. After the film “Chicago” was lensed in Toronto, Hastert expressed strong support for runaway production legislation. But Hastert has other local business interests at stake as well. Caterpillar and Boeing are also Illinois companies.

Hastert spokesman Pete Jeffries reaffirmed his boss’ commitment to curbing runaway production.

“The speaker has said that films about America need to be made in America,” Jeffries said. “He’s involved in ongoing talks with chairman Thomas (about the bill).”

While most Democrats on the Ways and Means panel oppose Thomas’ overall bill, they support the filmmaking provisions.

“We have been trying for years to get try to get Congress and the American public to realize how important the industry is to Americans,” said Rep. Xavier Becerra (D-Los Angeles) “We don’t want to act too late. When we see too many Hollywoods established around the world, we will have lost our edge.”

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