Lobbyists get crucial time

The postponement of a House vote on a $70 billion tax-cut package gives business lobbyists two crucial weeks to woo recalcitrant GOP centrists, who pushed their leadership to delay the cuts for fear of political fallout.

K Street’s highest priority is extension of the 15-percent tax rates on capital gains and dividend income. They do not expire until 2008, but failure to extend them could deal a blow to investor confidence and the stock market, analysts maintain.

President Bush continues to tout corporate tax cuts as the centerpiece of his economic agenda, though his sagging approval ratings have lent some centrist Republicans enough cover to oppose passing the tax breaks so soon after cutting social programs.

“That was part of the judgment that went into the decisionmaking on the House side,” said Jade West, vice president of government relations at the National Association of Wholesaler-Distributors and leader of the Tax Relief Coalition (TRC), a business-lobbying behemoth instrumental in passing the White House’s two previous rounds of tax cuts.

The TRC, the Alliance for Tax Fairness and Growth and other business groups will use the Thanksgiving recess to counter centrists’ concerns that extending the capital-gains and dividend cuts will bloat the federal deficit unless they are offset. Lobbyists say the economic growth wrought by the cuts will act as an offset itself.

“A rather compelling case can be made, based on statistics, that those tax cuts generated a huge amount of revenue,” West said. She cited the $260 billion jump in tax revenues this year, as measured by the Congressional Budget Office, which corporate economists attribute largely to the capital-gains and dividend breaks.

The TRC’s management committee sent a letter to House leadership Friday, hours after the early-morning budget-reconciliation fight, urging a swift vote on the matching tax reconciliation package as soon as the lower chamber returns, on Dec. 5.

“We understand that successful completion of the deficit reduction legislation has been your top priority this week, and hope that you will achieve the same success with the tax reconciliation bill in early December,” the TRC leaders wrote. The tax cuts should be conferenced and signed into law by Bush before Congress adjourns for the year, the lobbyists added.

The letter was co-signed by the committee’s lobbying-superstar membership: West, Wholesalers President Dirk van Dongen, Americans for Tax Reform President Grover Norquist, National Association of Manufacturers Vice President Mike Baroody, Business Roundtable President John Castellani, U.S. Chamber of Commerce Vice President Bruce Josten and top lobbyists from the National Restaurant Association, the Food Marketing Institute, FreedomWorks, Associated General Contractors and the National Federation of Independent Business.

The Alliance, a cadre of more than 40 top trade associations and corporations led by the Securities Industry Association, sent similar letters to House leaders and members of the Republican Study Committee (RSC), quoting incoming Federal Reserve Chairman Ben Bernanke and Treasury Secretary John Snow, both supporters of the capital-gains and dividend cuts.

Business interests will repeat their support for the tax cuts throughout the recess, hoping to maximize pressure on Senate and House conferees to bridge their disparate versions in a manner that satisfies centrists and conservatives alike.

The Senate did not extend the capital-gains and dividend cuts, preferring to extend the exemption for the alternative minimum tax (AMT) and to index it for inflation. The House made the opposite move, leaving the AMT unchanged, which has not been done since its creation in 1986 — while renewing the tax cuts.

Compromise proposals are flying fast and furious among lobbyists. One popular idea would extend the AMT exemption at the highest rate while including only one more year of capital gains and dividend cuts.

“It’s very possible, but the only problem they have with that is they don’t have enough money to do the best of both worlds,” said Hazen Marshall, a partner at the Nickles Group. “I don’t think the House can pass it without capital gains and dividends, and the Senate can’t pass it if the AMT is not in there.”

Lawmakers were upbeat about their ability to reconcile the bills in the short time available to them.

“Republicans would like to do something about the AMT. We also want to extend the capital gains [cuts],” said Rep. Clay Shaw (Fla.), second-ranking Republican on the Ways and Means Committee. “Obviously, a lot of trading goes on in conference.”

Rep. Jeb Hensarling (R-Texas), a top financial-services voice on the RSC, agreed with Shaw.

“We’re all committed” to providing AMT relief, Hensarling said. But he ranked capital-gains and dividend cuts as a higher priority: “I’d like to extend them for infinity, but … I’ll take what I can get.”

Another potential tax-cut compromise would leave out the AMT overhaul, exploiting its bipartisan appeal to generate momentum for a full-scale tax-reform bill early next year. Reports that the president will call for a broad revamping of the tax code in February’s State of the Union address have lent credence to this theory.

“It forces the issue to the table by not including an extension,” said Ed McClellan, a tax lobbyist and partner at Alston & Bird.

Deals cannot be struck until the House passes its tax reconciliation bill, which was overtaken Friday by a high-profile debate on the Iraq war. Burson Taylor, spokeswoman for House Majority Leader Roy Blunt (R-Mo.), disputed the notion that the tax-cut vote was postponed.

“The term ‘postponed’ means it was scheduled, and it wasn’t,” Taylor said. Rather, Blunt had predicted to reporters that the tax package could be handled as soon as the budget cuts were passed.

Ways and Means Chairman Bill Thomas (R-Calif.) briefed conference members on the specifics of the tax-cut bill Friday morning. Taylor said the meeting was successful but some members’ questions remain outstanding, making the extra time helpful.