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Edited on Mon Feb-28-05 01:38 PM by ElsewheresDaughter
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"A WILDLY UNPOPULAR loophole secured by four companies from Houston illustrates how easily special interests were able to hijack the American Jobs Creation Act. Weatherford International, Noble Corporation, Nabors Industries, and Cooper Industries—all located in or around the home district of House Majority Leader Tom DeLay—hired a small army of lobbyists in 2002 with a simple, if audacious, aim: to protect a tax benefit that the congressional leadership, and even President Bush, had vowed to end.
The provision in question allowed U.S. firms to open Potemkin headquarters in tax havens like Bermuda to hide their profits from the Internal Revenue Service. This so-called Bermuda loophole had saved companies like Accenture and Tyco International millions. Concerns about leaving other taxpayers to take up the slack were—at least in corporate boardrooms—easily dismissed. As one consultant from Ernst and Young advised at the time, "The patriotism issue needs to take a backseat."
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The American Jobs Creation Act was a monster two years in the making. In January 2002, the World Trade Organization ruled that a $5 billion-a-year tax break for American exporters amounted to an illegal subsidy. Congress would have to repeal the law to avoid punishing European tariffs. But antitax crusaders on the Hill weren't about to stick corporate America with the equivalent of $50 billion in new taxes over the next decade, so the congressional leadership sought to replace the illegal benefit with a legal one.
With the corporate tax code in need of major surgery, Bush was presented with a once-in-a-generation opportunity for comprehensive reform. But the president refused to get involved. Unlike his approach to cutting personal income, dividend, and estate taxes, he didn't instruct the Treasury to craft a coherent policy. To avoid stepping on the toes of his corporate supporters by shuttering favored tax breaks, Bush simply let the Republican Congress have at it.
Lawmakers began with a modest reform agenda—one that included closing the Bermuda loophole and ending tax breaks to companies that let executives take personal flights on company aircraft. But reform quickly took a backseat to horse-trading. "The way you get the votes," said one tax lobbyist who worked on the bill, "is you buy them." The bill needed the support of hundreds of lawmakers, each with corporate constituents to please.
Corporate lobbyists began targeting members with plum committee assignments to sponsor their pet tax cuts. International Speedway Corp. spent $280,000 to retain four former congressional staffers. Senator Rick Santorum (R-Pa.), who has a Speedway track in his state, responded by adding $92 million in tax cuts for NASCAR racetrack owners. After collecting more than $45,000 in campaign contributions from Carnival Corporation, Senate Finance Committee members Lisa Murkowski (R-Alaska) and Bob Graham (D-Fla.) snuck in a $28 million tax break for cruise ship operators. Fellow committee members Olympia Snowe (R-Maine) and John Breaux (D-La.) both pushed a break for military shipbuilders with shipyards in their home states.
The bill quickly degenerated into a special-interest free-for-all. Even reform-minded senators weren't immune: "Nearly every member raised narrow-interest provisions," Grassley later remarked. "We all do it."
THE HOUSTON FOUR joined early in the lobbying frenzy. They didn't need to stop the Bermuda loophole from being closed; it was to their advantage to know that it would be shut—eventually. They simply needed to make sure the cutoff date was changed so that their tax gains would be grandfathered in. For that they needed to get the ear of the House leadership—particularly Majority Leader DeLay and Chairman Thomas.
The four had the advantage of being longtime contributors to Republican campaign chests, with Cooper Industries leading the pack with nearly $200,000 in contributions to House Republicans in the 2004 campaign cycle. To push their agenda, the firms signed up a former congressman and more than a half-dozen high-profile former Republican staffers. Noble Corporation and Weatherford International joined forces to retain Bill Archer, the retired representative from Houston who had run Ways and Means until 2001, when Thomas took over. They also bought the services of Archer's former chief of staff, Don Carlson. Cooper and Nabors teamed up to hire an all-star cast that included the former director of the Joint Committee on Taxation, as well as both a former chief of staff and a special counsel to that tax committee. In all, the four companies spent more than $2 million on lobbyists for the single issue.
They got what they paid for. In March 2003, DeLay himself intervened on their behalf. At the time, the House was considering an unrelated bill freighted down with tax proposals—including a measure to close the Bermuda loophole—that would eventually find their way into the American Jobs Creation Act. At 8:30 p.m. on March 5—the night before the House was scheduled to vote on this bill—GOP leaders called an "emergency meeting" of the Rules Committee. There, according to the Houston Chronicle, DeLay introduced a new proposal that would postpone closing the Bermuda loophole by exactly one year.
While Republican infighting doomed the bill—it never came up for a vote—DeLay's backroom maneuver permanently altered the House debate over the Bermuda loophole. When the final versions of the American Jobs Creation Act passed in the House and Senate, the Senate stuck to Grassley's original Bermuda deadline. The House favored DeLay's—which, in turn, favored the Houston Four.
The task of reconciling the two bills fell to Chairman Thomas. Although he had previously stood shoulder to shoulder with Grassley, he did not cross DeLay. The later cutoff date prevailed.
All that was left was grandstanding. Grassley made one final protest. "There were many companies," he complained, "that defied our warnings." He then addressed Thomas directly: "The problem I have with your , Mr. Chairman, is that these companies get off scot-free."
Rep. Sandy Levin, a Democrat from Michigan, asked a congressional accountant to read the names of all the companies that would benefit from delaying the loophole closure by one year. There were exactly four: Noble. Weatherford. Cooper. Nabors.
Three weeks later, somewhere in the airspace over Ohio, the tax break for the Houston Four—along with hundreds of other corporate considerations crafted by lawyers and tax accountants—became law when President Bush signed the $137 billion bill. Or, more accurately, when he stuck you with it.
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