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New Math on Hill, Scramble on K Street
SOURCE: Washington Post
Jeffrey H. Birnbaum
March 20 2007

Lobbyists are scrambling all over Capitol Hill to prevent any of their clients from becoming a "pay-for."

The Democrats' new pay-as-you-go budget regimen means that lawmakers who want to spend more on one program have to either cut another or raise taxes to pay for it. Similarly, if they want to cut taxes, they must fund the cut by trimming programs or raising other taxes to make up the difference.

Those budgetary offsets are called pay-fors -- a new Washington buzzword striking fear in the hearts of special interests.

Some big pay-fors may be needed. The Democrats' top tax goal in the House is a repeal of the alternative minimum tax, which threatens to increase taxes on many middle-income families. The price tag: about $1 trillion over 10 years. Lobbying groups are fretting about which of their benefits might be eliminated first to pay the bill.

In the Senate, Budget Committee Chairman Kent Conrad (D-N.D.) is writing a budget plan that permits the extension of President Bush's tax cuts past their 2010 expiration date -- so long as they are paid for, Conrad said in an interview yesterday. That would cost more than $400 billion over five years.

Almost every corporation and trade association is on high alert. Interests as varied as health insurers and automakers are working overtime to prevent attacks on their favorite subsidies.

"Everybody's worried about being an offset, a pay-for," said Joel Jankowsky, head of lobbying at the law firm Akin Gump Strauss Hauer & Feld. "Congress is going to be looking at everything, which means that everything is at risk."

Businesses are feeling particularly vulnerable. "It's always so-called corporate loopholes they want to close," said John J. Castellani, president of the Business Roundtable, a group of big-company chief executives.

Take the rapid write-offs that sport-utility vehicles get. Current law gives these heavy autos special tax breaks, but Rep. Earl Blumenauer (D-Ore.), a member of the House Ways and Means Committee, said he intends to offer legislation that would shave those benefits for luxury cars used by businesses. The revenue that would create: $2.2 billion over four years.

"What in God's name is the rationale for including luxury cars that are heavy and consume lots of gasoline?" Blumenauer asked. "It's working against so many of our priorities and policy values."

But auto companies do not want to become pay-fors, no matter the argument. Loss of the tax break would further reduce sales of the vehicles, they say, so lobbyists for foreign and domestic automakers have been making the case to staffs of congressional tax writers for a reprieve.

Democrats adopted the new budget discipline as soon as they took charge of Congress this year. They said they were responding to voter anger over unrestrained federal spending.

Oil companies already have been targeted: One of the first bills to pass the House would truncate oil-drilling subsidies to underwrite research and production of alternative fuels. The American Petroleum Institute is coordinating efforts to prevent the cutback from succeeding in the Senate. One-page summaries of its arguments have blanketed Senate offices for weeks.

The oil company lobbying does not stop there. "It would be nice if one could focus only on the Senate, but the fact is the House is continuing to do business that could affect us," said James Ford, the API's vice president for government affairs. "We continue to spread ourselves thin and operate in both places."

Lawmakers are getting help with their lists of pay-fors from the Congressional Budget Office and the President's Advisory Panel on Federal Tax Reform -- both have set their sights on stepping up scrutiny of international tax laws, moves that could cost multinational firms millions of dollars.

The multinationals are ready for a long-term resistance: Forty of them have banded together to form the Coalition for Analysis and Study of Territorial Taxation under the aegis of the accounting firm PricewaterhouseCoopers. The companies' tax executives meet regularly with academic economists to contemplate better tax systems, but their work would also be useful in the short term if the pay-as-you-go knife falls. "If someone did pull out that kind of thing, these companies would be in a very good position," said Lindy Paull, co-director of the accounting firm's tax policy group.

Hospitals are also battling to avoid a benefit cut. President Bush has recommended reducing Medicare and Medicaid reimbursements to hospitals, and the American Hospital Association is pressing Congress to ignore the idea.

The association and its allies have produced studies showing that there would be ill effects of the change and have bought television, radio and print ads inside the Beltway to hammer home the findings to policymakers. To make sure the message is received, their lobbyists have put the information into the hands of lawmakers and have flown hospital workers to Washington to make the case personally to elected officials.

Pay-as-you-go "has put everybody into a fiscal straitjacket," lamented Rick Pollack, executive vice president of the American Hospital Association. "It's going to be a challenging year."

Health maintenance organizations are also under assault. Rep. Pete Stark (D-Calif.), who chairs the health panel of the Ways and Means Committee, said that health maintenance organizations that operate under Medicare are being overpaid and should receive less money so that other health-related programs can be better funded.

The trade association for health benefit providers, America's Health Insurance Plans, is resisting that idea every way it can. Karen M. Ignagni, the group's president, has encouraged health-plan participants who are pleased with their coverage to write their lawmakers. She has also dispatched lobbyists to Capitol Hill to try to defeat the proposal by recasting it as shrinkage of health care for seniors.

And, of course, there is fundraising. The National Mining Association and some coal companies, worried about getting on the short side of environmentally friendly legislation, are holding a fundraiser next week for Rep. Rick Boucher (D-Va.), chairman of the House Energy and Commerce subcommittee on energy and air quality.

Even some pay-fors that sound obscure would be far-reaching. Business groups are worried that lawmakers might revive a year-old proposal that would punish oil companies by disallowing an inventory accounting method called "last in, first out." The change, even if done temporarily, would raise billions of dollars.

A coalition of 122 trade groups led by the National Association of Wholesaler-Distributors has handed out fact sheets on Capitol Hill explaining that thousands of small companies, not just big oil firms, would be hurt by the change. "We have a huge education job to do," said Jade C. West of NAW. "We're working it day and night."

Some industries believe that pay-for pain is coming almost no matter what they do and are lobbying to soften the blow. That is the case with a popular plan that would require securities firms to provide to investors the original cost of stocks so that they can accurately calculate the capital gains taxes they owe on stocks they sell.

To minimize the hefty expense of finding and providing that data, lobbyists and experts for the Securities Industry and Financial Markets Association have been talking to officials in Congress and the executive branch to urge a gradual phase-in. "Our goal is to make sure that any legislation is realistic, effective and executable," said SIFMA's Travis Larson.

Some industries began their effort to avoid becoming budgetary offsets even before the House formally adopted the pay-go system and the Senate accepted it informally in January.

The American Gas Association, which represents natural-gas utilities, said that it was disappointed last month when the White House suggested a pay-for that would reduce the value of write-offs for gas pipeline construction but that it was not shocked. Starting last year, the organization had anticipated that the subsidy might be vulnerable and began talking to lawmakers about maintaining it. "We're well positioned to prevent this from being overturned," said Richard D. Shelby, executive vice president of the association.

But no group is immune. "In a pay-as-you-go environment, pretty much anything that can be done quickly and generates a lot of money could be in play," said Dan Danner, executive vice president of the National Federation of Independent Business. "That's a real worry."

~end~