Agreement Is Reached to End Price Supports on Tobacco

Congressional negotiators agreed Wednesday on a nearly $140-billion, 10-year corporate tax overhaul that also sought to end a Depression-era tobacco quota and price support program.

The measure, which offers $10 billon in payouts to growers in return for the end of their tobacco supports, is expected to be approved by the House as early as today. It could face trouble in the Senate, however, because it no longer includes a provision to give the government new powers to regulate the sale, distribution and advertising of cigarettes and other tobacco products.

Congress is under pressure from corporations, which are eager for the tax cuts, to pass the bill before adjourning at the end of this week. Adding to the pressure, the tobacco buyout has become a hot issue in the Senate race in North Carolina, which is critical to the control of the chamber.

The measure was originally drafted in response to the European Union’s levying of sanctions on 1,600 U.S. goods, from California produce to North Carolina textiles, after the World Trade Organization declared a U.S. export tax break to be an illegal trade subsidy. The retaliatory tariffs, which began in March at 5%, have been rising by 1 percentage point a month and now stand at 12%.

The massive bill would repeal the export tax break and replace it with other tax breaks, including one for the manufacturing sector, which has been hard hit by job losses. The bill would also effectively reduce the top corporate tax rate from 35% to 32%.

It also includes tax breaks that would benefit a range of narrower interests, such as the horse racing industry, NASCAR racetracks, bow-and-arrow makers and stores that sell alcoholic beverages.

The bill is also loaded with tax breaks benefiting key lawmakers’ home-state interests. Two Senate incumbents facing tough reelection fights won breaks for their constituents: Farm-state lawmaker Tom Daschle, the Democratic minority leader from South Dakota, got one for the ethanol industry, while Lisa Murkowski (R-Alaska) won a break designed to spur building of a trans-Alaska gas pipeline.

The bill also includes a provision pushed by House Majority Leader Tom DeLay (R-Texas) that would allow residents of seven states without state income taxes -- Texas, Florida, Washington, Nevada, South Dakota, Wyoming and Tennessee -- to deduct sales taxes from their federal income tax.

Sen. Edward M. Kennedy (D-Mass.), who championed the tobacco regulation, might try to lead a filibuster against the bill. A Kennedy aide said his boss was “prepared to use all parliamentary tools available to him to try to defeat” the measure.

Kennedy was joined by a bipartisan group of senators earlier this year in linking the tobacco buyout to giving the Food and Drug Administration new authority to regulate tobacco, such as requiring companies to place larger warnings on products and preventing advertising that appeals to children. The FDA could not ban tobacco.

Joanne Thornton, managing director for international trade policy research at the Schwab Washington Research Group, said she believed 60 of the 100 senators could be marshaled to overcome a filibuster. “There are so many provisions in the bill that are attractive to members of Congress and their constituencies,” she said.

Sen. Dianne Feinstein (D-Calif.) said she was leaning against the bill, in part because of how it treated Hollywood. A Feinstein aide said that while the bill contained a modest tax incentive to promote film production in the United States, the benefits to the industry would be offset by nearly $5 billion in increased taxes.

The tobacco industry has been divided over the regulation, with Philip Morris, the nation’s largest cigarette maker, favoring it and R.J. Reynolds opposing. In a recent letter to senators, R.J. Reynolds called FDA regulation “nothing more than a punitive measure designed to ensnare the entire tobacco industry ... in layer upon layer of stifling government regulation.”

The buyout -- to be funded by an assessment on tobacco companies -- seeks to aid growers who have struggled to survive in the face of increased imports and antismoking campaigns. It would end the tobacco quota system established during the Depression, which mandates how much individual farmers can grow and sets minimum prices.

A study by the Environmental Working Group, a watchdog group, found that 436,719 tobacco quota holders or growers would be eligible for a share of the buyout and that hundreds of growers would receive more than $1 million each.

Rep. Henry A. Waxman (D-Los Angeles) called the bill “an abomination that takes care of the special interests but abandons our kids.”