Metzenbaum Seeks to Curb ‘Transition Rules’ : Exemptions in Tax Bill Under Fire

Written in shadowy Capitol Hill hideaways and agreed upon in late-night bargaining, the few billion dollars worth of special exemptions discreetly hidden in the fine print of the 1,489-page Senate tax bill are the perfect target for the “ghostbuster” of the Senate.

Sen. Howard M. Metzenbaum (D-Ohio), who has made a specialty of shining the light of unfavorable publicity on the dark corners of the political process, is trying to exorcise some of the 175 custom-tailored “transition rules” in the Senate tax package.

Valued near $5.5 billion, they were written into the tax bill by Senate Finance Committee Chairman Bob Packwood (R-Ore.) at the behest of favored lawmakers, generally to protect local business constituents and long-planned public projects from financial losses because of sudden changes in the tax code. Although selectively aimed at particular taxpayers, most of them are considered a legitimate and integral part of crafting any tax bill.

Special ‘Arrangements’

“As we were putting the bill together on the last two nights,” Packwood said, “you made whatever arrangements were necessary for the sake of the whole bill.”

All members of the tax-writing Finance Committee were granted at least a few of their requests, and early backers of the bill were rewarded with a greater number of special provisions. Even some non-members of the panel received one or two of the prized transition rules to help Packwood in his efforts to protect the bill against crippling amendments.

House Ways and Means Committee Chairman Dan Rostenkowski (D-Ill.) followed a similar deal-making process last year, when he managed to extract a bill from his 36-member panel, in part, by agreeing to hundreds of transition rules carrying a total price tag of almost $26 billion.

Last Friday, however, Metzenbaum launched a floor challenge, threatening to demand record votes on as many as 19 of the transition rules that “go far beyond the pure form.” The Senate bill, he argued, contains a number of examples of “greed rules” for taxpayers “who not only would not take their lumps like everyone else, but sought--and received--special treatment.”

Hits Oil Tax Break

For example, Metzenbaum singled out several multimillion-dollar rules granting different oil companies a much longer time to adjust to changes affecting foreign tax credits, a $1.2-billion provision slashing taxes for foreign investors in U.S. real estate and one tiny loophole exempting wealthy racehorse owners from tighter tax laws.

Other exceptions would help out a host of selected business firms, including a $7-million provision that would retain existing tax benefits for several Walt Disney films under production, a $37-million tax break to help Toyota build its first U.S. factory and $500 million in cash rebates handed out to unprofitable steel companies for the loss of unused tax credits that would be eliminated by the bill.

Commenting on the special provisions, even Senate Majority Leader Bob Dole (R-Kan.) conceded: “Some of these things are really bad.”

Normally, the merits or demerits of the case would not make much difference. Relying on the age-old politics of “you-scratch-my-back, I’ll-scratch-yours,” senators rarely vote against their colleagues on such matters when they know they may be seeking a similar favor as well.

Squeezed by Power Play

But Unocal Corp., parent of Los Angeles-based Union Oil Co., was squeezed by a political power play after Packwood freed his allies to vote on Friday against a rule in the tax bill he previously had defended successfully against all other attacks. Not only was Unocal’s argument in defense of the provision shaky, but the amendment was sponsored by Sen. Pete Wilson (R-Calif.), who had defied the Senate leadership by joining the challengers attempting to restore tax breaks for individual retirement accounts and charitable contributions to the bill.

When Metzenbaum zeroed in on Unocal as his first target, Wilson was punished for his earlier opposition on the two critical amendments, losing on a 60-33 vote.

Apparently stunned by his rare victory on the floor, Metzenbaum vowed to pursue at least one or two more amendments today. “He’s on a winning streak,” joked Dole, “and he wants to pursue that when he’s hot.”

But Packwood’s unspoken message to the rebels has now been delivered, and Unocal is expected to be the only victim of changes in the tax package.

Some senators have objected to being left out when Packwood was granting favorable exceptions. “We would like, a number of us, a list of the transitions,” complained Sen. Carl Levin (D-Mich.) earlier this month, “so that we can see what are the standards which have been used, so that we can see what situations in our states might fit those standards.”

Although Packwood and his staff have screened many of the rules on their merits, there are certainly no clear standards that explain why one transition rule is accepted and another is not.

‘These Are Rewards’

“Come on, that’s not the way it works,” replied one Finance Committee staff member when asked about Levin’s statement. “These are rewards to those who are with us when we need them.”

The unprecedented changes to the code likely to occur if tax revision becomes law have made the rewards of winning a transition rule all the more valuable this year. When Senate and House negotiators meet next month to work out the differences between their two bills, hundreds of lobbyists will be battling each other to win access to key lawmakers in hopes of helping out their clients.

“We’ve been fairly careful on transition rules,” a staff member said. “But if you think this is bad, just wait until the conference. You ain’t seen nothing yet.”