The Senate commemorated the Columbus holiday Oct. 11 by holding a special session to pass the corporate tax bill, also known as the FSC/ETI bill. The previous week the House had passed the bill, which was designed to remove certain corporate tax subsidies on exports which had been ruled illegal by the World Trade Organization two years ago. The new tax breaks hit the nation at a time when corporate tax revenue has dropped to a historic low -- and the federal deficit has climbed to an all-time high. Last week, the Congressional Budget Office reported the FY 2004 federal deficit hit a record $413 billion.

Despite this deficit (see deficit article this issue), the Senate passed the 650-page corporate tax bill by a vote of 69-17. It includes $143 worth of tax breaks for companies over 10 years and is supposedly offset by loophole closures and other revenue measures.

Critics, however, see the bill as nothing more than billions of dollars worth of giveaways, passed right after the President signed into law a $176 billion unpaid-for extension of several tax cuts for individuals (see previous Watcher article for more). Ted Kennedy (D-MA), one of 17 senators who voted against the bill, said the bill "puts the interest of the big corporations above the public interests, above the hopes and dreams and everyday needs of the American middle class." It is easy to see why Kennedy and others took this position. And according to a Washington Post articleabout the bill, the $76.5 billion centerpiece tax cut, provides "tax deductions that would lower the corporate income tax rate from 35 percent to 32 percent for U.S. 'producers.'" These producers, though, are defined very broadly, and they include manufacturers, Hollywood studios, architectural and engineering firms, homebuilders, and oil and gas drillers, among others.

And although an official cost estimate shows that the bill is deficit neutral, many critics argue the measures laid out in the bill will actually lead to higher deficits in the future. A report by the Center on Budget and Policy Priorities contends that the bill includes a number of temporary tax cuts that will routinely be extended (also called "extenders"). As the report states, if the new tax cuts not really intended to be temporary are extended, "the bill's deficit neutrality will evaporate unless the costs of extending these provisions are offset. If these costs are not offset, extending these provisions would reduce revenues by nearly $80 billion through 2014."

One of the more contentious aspects of the bill concerned a provision to grant the Food and Drug Administration authority to regulate tobacco. Senators originally saw the corporate tax bill as their best chance to pass this type of legislation, however it was not included in the final conference report, as enough senators supported a measure that didn't include the FDA provision.

There's speculation President Bush may wait until after the election to sign the bill, although his administration supports it. One thing is clear -- as columnist David Broder noted in a recent column in the Washington Post -- Congress recessed without having passed an FY 2005 budget resolution, nine of the appropriations bills, and a needed increase on the national debt limit. They were however, able to push through excessive tax relief in a special holiday session. Congress should be as focused -- if not more -- on completing their budget priorities as they have been on making sure they push through tax relief.