WASHINGTON — For months it looked like Hollywood would stand to reap hundreds of millions — if not billions — of dollars over the next decade from a corporate tax bill making its way through Congress.
But in the final round of negotiations, House Republicans on Wednesday voted down one of the industry’s most sought-after provisions, handing Hollywood a serious legislative defeat.
The Republicans nixed language that would have allowed studios to calculate their profits on each separate product line sold overseas — theatrical releases, DVDs and sales to foreign TV. Instead, profits will be calculated on a studio’s total sales.
Film biz tax lobbyists pushing for the product line calculation benefits say that without that language, Hollywood will face a $4 billion-$5 billion tax hike over the next 10 years. Independent tax analysts estimate that film companies would be in the hole at least $1 billion over the next decade.
“The movie industry has been very aggressively lobbying on this issue for over a year,” said Ken Kies, a tax lobbyist working on behalf of Viacom, Disney and Time Warner, a group dubbed the Film Coalition. “Sometimes you don’t win. I think the industry did as good a job as it could to communicate what’s at stake here, but there were so many competing business interests.”
The House is poised to vote on the final bill today, with the Senate aimed at following suit Friday.
The overarching corporate tax legislation would give U.S. manufacturers income tax breaks in exchange for losing an export subsidy that the World Trade Organization has deemed illegal.
Some plus points
Legislation is not completely devoid of Hollywood benefits.
The massive bill would reduce the top corporate tax rate by 10%. It also contains a tax incentive for studios to film in the U.S. instead of going overseas — an effort at curbing runaway production.
The Directors Guild of America and other showbiz orgs have been pushing for years for such a measure and in the final version secured a slightly scaled-down version of the original language. Movies made in the U.S. must have a budget of at least $15 million to qualify for the relief.
The Motion Picture Assn. of America also persuaded lawmakers to include language fixing a long-running dispute with the IRS over how studios deduct costs of films and TV shows.
But Kies said those provisions will do very little to make up for the overall tax burden the elimination of the subsidies imposes on the movie biz.
In last-minute maneuvering, Sen. Max Baucus (D-Mont.), the ranking Democrat on the Finance Committee, offered an amendment with bipartisan support in the Senate that would allow the product line calculations. But House Republicans led by House Ways and Means Committee Chairman Bill Thomas (R-Calif.) and Majority Leader Tom DeLay (R-Texas) lined up against the measure.
Act of revenge?
With so much money at stake in the bill for Hollywood, the legislative defeat is fueling a new round of allegations that House GOP leaders are seeking revenge on the studios for hiring Democrat Dan Glickman to replace Jack Valenti as head of the Motion Picture Assn. of America.
As Daily Variety has reported, Republicans were incensed that the studios chose a Democrat over a Republican candidate to head one of the most high-profile trade orgs in Washington at a time when the GOP controls both houses of Congress as well as the White House.
Other congressional and industry sources dismiss such charges, arguing that the film industry simply lost out in battle with so many other competing U.S. business interests.
Still, speculation about the motives of GOP leaders abounds in Washington as DeLay’s hardball political tactics face increased scrutiny. In recent weeks, several of his top fund-raising aides have been indicted by a Texas grand jury, and a House Ethics Committee has scolded him for tying a Medicare vote to support for the congressional candidacy of a retiring lawmaker’s son.
In 1998, the House Ethics panel admonished then-Majority Whip DeLay for pressuring the Electronics Industry Assn. not to hire former Rep. Dave McCurdy, a Democrat.
DeLay spokesman Stuart Roy said there is no merit to the latest assertions that his boss or any other Republicans are trying to punish Hollywood for tapping Glickman.