Lawmakers put brakes on breaks

H'w'd hitting hurdles over federal benefits

WASHINGTON — Hollywood is having a tough time getting Congress to greenlight tax breaks worth billions of dollars to the industry.

For the second time in two months, a corporate tax bill containing a gold mine of benefits for the studios has stalled in the Senate as Democrats try to add a raft of labor-related amendments that GOP leaders oppose.

The showbiz benefits were quietly buried months ago in the Senate version of the Jumpstart Our Business Strength (JOBS) bill, and they are expected to pass easily along with the overall bill if Democrats and Republicans can overcome a political impasse.

Democrats have insisted on attaching controversial clauses such as one to limit overtime pay for some U.S. workers and another that would raise the hourly minimum wage. So far, Republicans have refused to allow the provisions, charging Democrats with trying to score election-year points on a bill designed to help all U.S. manufacturers.

Political points

Sen. Charles Grassley (R-Iowa), chairman of the Finance Committee, also accused Democrats of trying to kill the bill to deny President Bush the opportunity to sign the JOBS bill just months before the election. Grassley offered to change the name of the bill if that would convince Democrats to move it.

“We could call it the Democratic Prosperity bill if they want,” he said. “We just have to get it done.”

Senate Democratic leader Tom Daschle (D-S.D.) counterpunched, accusing Republicans of obstructing his party’s right to add amendments on important labor issues.

The legislation would give U.S. manufacturers breaks on their income tax in exchange for giving up an export subsidy that the World Trade Organization has deemed illegal. Because of that ruling, the European Union has already imposed tariffs on most U.S. exports starting March 1; they are set to increase one percentage point per month until 2005.

According to several congressional sources, the new tariffs will impose a $3 billion burden over 10 years on Hollywood, and studio lobbyists have worked overtime to try to provide some relief.

H’wood advantages

There are several provisions in the underlying bill that would ease the new financial burden Hollywood faces on exports. The broadest would count studios as manufacturers to reduce the top corporate tax rate from 35% to 32% along with other U.S. businesses that build and produce products. Another, pushed by a coalition consisting of Disney, Time Warner and Viacom, would allow studios to exclude from tax 10% of their foreign box office profits.

The Motion Picture Assn. of America is also trying to fix a long-running dispute with the Internal Revenue Service over how Hollywood studios write off the depreciation of films and TV shows, and lobbied hard for a section of the bill that would do so.

Additional language would provide tax incentives for studios to film in the U.S. instead of going overseas; this clause is a pet project of the Directors Guild of America.

California’s Democratic Sens. Barbara Boxer and Dianne Feinstein have written a bill they plan to offer as an amendment that would exempt Hollywood from the new financial burden entirely by arguing that the WTO ruling does not apply to their products. That language alone would save the studios $3.1 billion over 10 years.

Without that amendment, one Senate source argued, Hollywood would be in the hole at least $1 billion as the JOBS bill reduces the new tariff burden by an estimated $2 billion as currently written.

Still, a lot is riding on the Senate version because the House Ways and Means panel jettisoned one major benefit for Hollywood last month after Rep. Donald Manzullo (R-Ill.) complained that film producers were getting a better deal than other manufacturers.

Immediately after the bill stalled Wednesday, Senate Majority Leader Bill Frist (R-Tenn.) said he would negotiate with Democrats in hopes of passing the JOBS bill this week. Other senators involved in the discussions predicted a vote would be put off until Congress returns from a spring recess the week of April 19.

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