US tax cut bill continues foreign earned income exclusion oil firms favor

Maureen Lorenzetti
Washington Editor

WASHINGTON, DC, May 23 -- The US Congress Friday finalized a $350 billion tax relief bill that preserves the foreign earned income exclusion, a tax break that oil companies say is a key incentive they use to recruit skilled workers overseas.
An earlier Senate version eliminated the measure. The exclusion currently allows US expatriates to shield as much as $80,000 from their income for tax purposes. The provision also allows workers to exclude some housing costs.

A House version did not eliminate the tax break; Senate budgetmakers wanted to kill it to pay for other cuts, although a vocal minority of senators from oil-producing states, led by Sen. John Breaux (D-La.), objected to its removal. Breaux argued that the tax break keeps US businesses competitive in international markets.
After the Senate vote, a coalition of oil and other corporate business interests launched a successful last-minute lobbying campaign.

According to the American Business Council of the Gulf Countries, over 200 meetings were scheduled with congressional staff immediately after the first Senate vote. The council then set up a "command center" on Capitol Hill with staff "working around the clock," the group said.
"We have taken these extraordinary steps to save the exclusion, because what the Senate has proposed will kill countless American jobs at home and abroad while seriously hindering trade and exports," said John Pratt, chairman of the ABCGC.
"We are here to oppose this risky policy because we know that fewer Americans abroad means fewer American goods and services sold abroad," said Jeffery Jones, an American businessman living in Bahrain.

Final tax bill
The Senate Friday narrowly approved the revised measure; Vice-Pres. Dick Cheney cast the deciding vote. (Under Senate rules, the vice-president casts the deciding vote when the Senate vote is tied).

President George W. Bush said he will sign the bill, which technically includes about half of the tax relief he sought and does not eliminate dividend taxes.

Proponents of the bill say the proposal will help stimulate the economy and generate jobs. Opponents say the plan helps only the wealthy and will bankrupt federal and state governments because several of the tax cuts in the bill are likely to be extended past their scheduled expiration dates.

The bill lowers capital gains and the top dividend tax rate to 15% through 2008. It also accelerates already scheduled income tax cuts and adds new tax breaks for businesses that invest in new equipment.

Industry reaction
The dividend tax cut measure included in the overall tax cut bill, will make energy utilities a more attractive investment and help them to decrease the cost of raising capital to meet the challenge of building a quarter-million miles of new natural gas pipelines, the American Gas Association said.

But the benefit may not be as pronounced for smaller exploration and production companies. Some worry that Wall Street may increase pressure on companies to "dividend out" cash instead of reinvesting money back into the drill bit.

The White House and tax cut proponents argue that lowering dividend taxes will encourage more investment in all industry sectors.