[ 2 pieces, both consistent with some of the hypotheses laid out in the first two chapters of "The Global Political Economy of Israel"]
GOP Aides Revise Bill To Help Big Firms Lobbyists See Opening For Special Favors By Jonathan Weisman Washington Post Staff Writer Saturday, March 1, 2003; Page E01 Even before Congress begins debating President Bush's tax cut plan, Republican tax-writing aides have inserted a generous new provision for major corporations and their shareholders that some fear could open the legislation to a tidal wave of loopholes. The provision would be of tremendous benefit to such blue-chip giants as International Business Machines Corp., Ford Motor Co. and General Electric Co., which otherwise would have had the value of billions of dollars in tax credits radically reduced by the president's plan to end the "double taxation" of dividends. Tax writers were expected to simply translate Bush's tax plan into legislative language for introduction on Thursday, but they wrote the potentially significant change after Treasury Department officials concluded that it was needed, said Pamela F. Olson, assistant Treasury secretary for tax policy. Bush proposed to make dividends on fully taxed corporate income tax-free to shareholders. Under the draft legislation, businesses could continue to deduct past payments of the corporate alternative minimum tax from their current tax burdens, but the use of those credits would not reduce the amount of money they could offer shareholders as tax-free dividends. Olson said the Bush proposal had already stipulated that refunds from corporate income taxes paid before 2001 would not count against tax-free dividends, so the AMT change would merely keep the treatment of past tax payments consistent. The cost to the Treasury may be minimal -- $2 billion a year or less -- said Robert S. McIntyre, director of Citizens for Tax Justice, a liberal tax watchdog group. But, he said, it could open the floodgates to lobbyists already seeking to protect their favorite tax credits from the impact of the president's plan. "This is sort of the camel's nose in the tent," said William G. Gale, an economist at the Brookings Institution. "They just blew the barn door off this bill," a Republican tax lobbyist said. The centerpiece of Bush's "economic growth package" -- which would cost the Treasury $637 billion through 2012 -- is the $335 billion dividend proposal. Under the plan, corporations would record fully taxed income in a special account, out of which they could offer their shareholders dividends that would not be taxed as income. Any tax credits that a company used to reduce its income taxes would also reduce the amount of tax-free dividends available to shareholders. If shareholders pressure companies to maximize the amount of tax-free dividends, some businesses and advocacy groups fear that companies would avoid activities that now are encouraged through tax credits, such as investing in the inner city, hiring welfare recipients, refurbishing historical buildings, building low-income housing or engaging in research and development. But the Bush administration has argued that corporate income should be taxed only once. If a company were allowed to take a tax credit for $1,000, then pass on that $1,000 to shareholders as a tax-exempt dividend, that profit would never be taxed. Republican tax aides say the new corporate alternative minimum tax loophole does not violate that philosophy but simply makes sure that companies get credit for past taxes paid. McIntyre said the proposal is unfair because it would in effect make the Bush dividend tax cut retroactive. Because companies are allowed to carry AMT credits indefinitely, shareholders could benefit from taxes paid as far back as 1987, when the corporate AMT went into effect. For some companies' shareholders, the provision would be a windfall. A 2001 Congressional Research Service report said companies held more than $26 billion in AMT credits. By the end of 2000, 16 companies had accumulated AMT credits worth more than $100 million, and most of them are generous dividend payers, according to Citizens for Tax Justice. IBM had collected $1.4 billion in AMT credits, Ford $1 billion, General Motors Corp. $833 million and GE $671 million. If the dividend proposal passes as drafted, all that money could be deducted from future tax liabilities without diminishing those companies' stock of tax-free dividends. The provision also would make it more difficult to resist lobbyists seeking to protect other tax credits. Housing advocates met with Treasury officials this week seeking to preserve the value of the low-income housing credit, which encourages developers to build affordable apartments. The advocates hope to persuade the administration and Congress to stipulate that the use of low-income housing credits would not diminish a company's pool of tax-free dividends. But according to meeting participants, Treasury officials told the advocates that such an exception would open the legislation to exemptions for virtually every tax credit in the tax code. That would significantly increase the cost of the dividend proposal and ensure that billons of dollars in corporate profits would never be taxed. Olson said the AMT decision should have no effect on the prospects for those other credits. "These guys paid those taxes in earlier years. They're just essentially getting refunds on taxes paid," she said. "It doesn't seem to me that this has any bearing on other credits at all." = = = = = = = = = = = = = = = = = = = = Charting a Corporate Course New SEC Chairman Promises to Prod Companies to Shape Up By Kathleen Day Washington Post Staff Writer Saturday, March 1, 2003; Page E01 William H. Donaldson, in his first speech as Securities and Exchange Commission chairman, said yesterday that his priorities will be to guide the agency as it grows rapidly to handle a record number of business scandals and to goad corporate America into shaping up and resetting its moral compass. The speech to a gathering of securities lawyers and executives was the latest effort by Donaldson, who became chairman two weeks ago, to send a clear signal that he intends to avoid the confrontational style that dogged his predecessor, Harvey L. Pitt, and mired the SEC in controversy for 18 months. Donaldson becomes the nation's top cop on Wall Street at a time when investor confidence has plummeted because of a number of accounting scandals over the past year and a half. And the financial blowups have continued, with the latest involving Dutch food giant Royal Ahold NV -- the parent company of Giant Food Inc. -- which disclosed that it overstated earnings by $500 million over the past two years. Donaldson declined to talk specifically about those scandals or about other issues facing the SEC such as who will chair a new accounting board or if rules regulating hedge funds and mutual funds need changing. Instead he talked about the tone he hoped to set at the agency: "I'd rather answer a more fundamental question that some of you may have been asking yourselves and each other: 'Where is Bill Donaldson coming from and where is he taking us?' " "I hope to challenge corporate America to look beyond rules, regulations and laws and look to the principles upon which sound business is based," Donaldson said. "To restore their trust, American investors must see business shift from instantly searching for loopholes and skating up to the line of legally acceptable behavior. They must see a new respect for honesty, integrity, transparency, accountability and for the good of shareholders, not only an obsession with the bottom line at any cost." Behind the scenes, Donaldson, a former chairman of the New York Stock Exchange and former chief executive of insurance giant Aetna Inc., has spent long days meeting with staff, many of whom reportedly chafed under Pitt's aggressive management style, and with reporters, who generally had a contentious relationship with Pitt. So far, SEC staff members have given Donaldson high marks for what they describe as a professional, even-handed approach. In his staff meetings, they said, he has solicited views and listened more than commented. The main task before the SEC's five commissioners -- three Republicans and two Democrats -- is to pick a chairman for the national board that Congress established to oversee the auditing industry in the wake of the collapse of Enron Corp., WorldCom Inc. and other once-high-flying companies. Donaldson has established a collegial process for making that pick, sources said. Each of the SEC's commissioners will select two or three names. SEC staff will then find out which of those people has an interest. Then they will do a preliminary background check to make sure there are no surprises. Pitt resigned after failing to alert the other commissioners that his pick to chair the board, former FBI and CIA director William H. Webster, had served on the audit committee of a company under federal investigation. The controversy over Pitt's handling of the selection process eventually forced Webster to resign, too. Donaldson is taking such pains to avoid even the appearance of trying to push someone without consulting other commissioners that so far, sources said, he's not even mentioning names in private to colleagues. Donaldson faces many other issues. At confirmation hearings early last month, he was noncommittal on most topics. The one exception was that he hinted that the SEC needed to reassert federal authority over setting securities industry rules. That role has been usurped over the past year by New York state Attorney General Eliot L. Spitzer, who investigated conflicts of interest on Wall Street. Donaldson met Spitzer on Thursday for the first time when Spitzer was visiting the agency on other matters, sources said. Although the two did not discuss anything substantive, industry sources said the fact that Donaldson went out of his way to "meet and greet" Spitzer signaled he intends to avoid the public confrontations that occurred last year between Spitzer and Pitt. One of the major issues facing Donaldson will be the SEC's year-long, ongoing investigation of hedge funds, which are essentially unregulated investment pools that function like mutual funds for large investors. In recent years hedge funds have proliferated and solicited business from a much broader spectrum of consumers. Some fund managers also have entered into arrangements that pose potential conflicts of interests: They manage both hedge funds and regulated mutual funds. Because fees from hedge investors are often more lucrative, critics said managers might be tempted to favor hedge fund investors over mutual fund investors. The SEC is also drawing up new policies on mutual funds. The industry reportedly hopes to persuade him to reverse a recent SEC decision requiring disclosure of proxy votes. The mutual fund industry vehemently opposed the new rule, but Pitt pushed it through, one of the few instances when he won praise from investor groups. The SEC also will soon put out for public comment a paper with ideas on how its oversight of credit-rating agencies should change.
