Tax break for biz

Trade measure will save H'wood billions

This article was updated at 6:41 p.m.

WASHINGTON — Showbiz lobbyists have quietly convinced key lawmakers in Congress to grant the industry major tax and expensing breaks.

Demonstrating the power of Hollywood forces, influential lawmakers have agreed to help movie makers, despite tough budgetary times made even tougher by $87 billion in new spending for Iraq.

And, in a twist on conventional political alliances, several powerful House Republicans are going out of their way to make the entertainment benefits happen — including House Speaker Dennis Hastert (R-Ill.).

“At a time when a lot of American are losing their jobs and many industries have record trade deficits, the only section of our economy that is able to provide a positive trade balance is the film industry,” Rep. Jim McCrery (R-La.) told Daily Variety Tuesday. “We want to do everything we can to help the film industry and Hollywood stay healthy.”

In the past few months, Hastert has repeatedly voiced his support for the U.S. moviemaking and efforts to rein in runaway production and convince studios to make movies in this country.

Years of effort

Entertainment industry reps have spent years trying to persuade Congress to help the industry lower taxes and create incentives for producers to make films in the U.S. A few months ago they found the right vehicle: A must-pass bill aimed at addressing a World Trade Organization ruling that found the United States was granting unfair tax breaks to its companies with overseas operations.

The European Union is now threatening to levy $4 billion in penalties on U.S. exporting business if Uncle Sam doesn’t get rid of the subsidies.

If the U.S. ends the export subsides without doing anything to offset that loss, the nation’s business sector would face an $82 billion hit over 10 years. Tax experts believe about 80 movie companies would face a $6 billion tax increase over the next 10 years.

Congress is now stepping in to try to do a little damage control and give all U.S. manufacturers a boost. In doing so, Rep. Bill Thomas (R-Calif.) has drafted the Americans Jobs Creation Act, which would lower corporate income tax for all manufactures by $60 billion over the next decade.

New designation

Amid the 245-page bill, lawmakers have added provisions that would designate moviemakers as manufacturers so they would be eligible for the same tax benefits.

Also buried in the bill is a provision dramatically cutting taxes studios pay for exhibiting films overseas. Congress’ joint tax committee estimates that proposal alone would save the industry $597 million over the next 10 years.

“Ultimately, the entertainment industry will keep more of the current (export subsidies and tax) benefits than any other exporting industry,” one senior House tax aide maintained.

MPAA topper Jack Valenti and Disney chief Michael Eisner are pushing the pair of provisions originally aimed at reducing taxes on producing films and exhibiting them overseas.

In the last few days, McCrery has jumped in to defend filmmakers’ interests and avoid any controversy that could sink the breaks for Hollywood.

Earlier this week, the language applied to films made domestically and overseas, leaving the bill vulnerable to criticism from Democrats and other lawmakers with a history of fighting runaway production.

“We should not add any incentive to the U.S. tax code to make motion pictures in other countries,” said Rep. Charlie Rangel (N.Y.), the ranking Democrat on the Ways and Means panel. “It’s bad enough that you can film the movie ‘Chicago’ in Toronto. We should not be rewarding that in the tax code.”

McCrery saves day

But Tuesday, McCrery, a key Thomas ally, stepped in to save the day. The committee adopted an amendment McCrery wrote that ensures that the only movies eligible for the break are those where at least 50% of the wages film employees receive are for services performed in the United States.

And the MPAA, studios and Hollywood lobbyists repping the interests of directors, artists and industry workers have secured commitments from key lawmakers to do even more for the industry to lower taxes and fight runaway production before the bill is up for a final vote early next year.

Under pressure to trim costs for the bill, Thomas did not include a different pair of pet showbiz provisions buried in the Senate version of the bill: expensing and depreciation language designed to fight runaway production and another that would hand studios a more beneficial tax depreciation schedule.

(Several lawmakers on both sides of the aisle had originally pushed a wage-based tax credit as an incentive to keep production in this country. But Thomas had long refused to move any wage-based credit because it would further complicate the tax code. But Thomas began warming to the expensing language this summer. )

Thomas firm

In a closed-door meeting with Republicans before the bill passed the committee Tuesday, Thomas reaffirmed his commitment to supporting the two extra provisions for Hollywood when the House and Senate hash our their conference on the measure some time early next year, according to sources.

Thomas would like to vote on the bill before Congress adjourns this year, but realizes it could face better odds if a vote takes place next year, after controversy dies down over funding for Iraq and the always thorny end-of-the-year appropriations process.

While the tax and expensing benefits are not without their detractors in Congress, industry lobbyists believe they have the support of the key lawmakers who control of the process and have overcome a number of critical hurdles this week.

“Between today’s amendment introduced by McCrery… and the tax provision previously approved by the Senate Finance Committee, the DGA is encouraged by the strong bipartisan support we have been receiving from both chambers of Congress in our effort to fight the economic impact of runaway production,” Directors Guild of America prexy Michael Apted said late Tuesday in a statement.

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