Steel Fights Aluminum for Breaks in Congress Rate Reform: Taxes – Bloomberg

In the balancing act between tax
rates and deductions, Congress is about to determine which
industry carries more weight: steel or aluminum.

The nation’s biggest aluminum maker, Alcoa Inc. (AA), has broken
with its steel industry counterparts and is lobbying Congress to
eliminate corporate tax deductions in exchange for a cut in the
tax rate to 25 percent from 35 percent, Bloomberg BNA reported.

Alcoa joined a coalition of companies called the Alliance
for Competitive Taxation that says a lower statutory corporate
rate is more valuable to business than myriad tax deductions.
That turns on its head the conventional wisdom that
manufacturers will fight to preserve corporate tax breaks.

The position stands out in a split among businesses on the
issue. For the most part, members of the alliance are in service
industries — Bank of America Corp. and financial institutions
for example — or in less capital-intensive industries, such as
pharmaceutical, retail and technology companies, which lobbyists
and tax analysts say have less opportunity to use benefits such
as the Section 199 deduction for domestic production.

Diverging views among industries aren’t unusual, said Eric
Toder, an analyst at the nonpartisan Tax Policy Center. Service-oriented companies and manufacturing companies took competing
positions on tax deductions during the last major tax overhaul
in 1986, he told BNA.

Still, divisions among big businesses blur the lobbying
effort on tax reform, which the leaders of the congressional
tax-writing committees aim to pass in their panels in 2013.

Territory Fight

While the National Association of Manufacturers has urged
Congress to preserve some key corporate deductions, Alcoa is
represented on the group’s board, as is another member of ACT,
Caterpillar Inc. (CAT) Caterpillar’s chief executive officer, Douglas Oberhelman, is chairman of the manufacturing association’s
board. Through a spokeswoman, Caterpillar declined to comment.

Toder said he found Alcoa’s position surprising.

Typically, Toder said, manufacturers want compensation
through the tax code for depreciation, while banks are
passthrough corporations that aren’t affected by the deductions
and retailers don’t incur much capital expense.

A lobbyist with ties to manufacturing told BNA that
companies with a big international presence, such as Alcoa,
aren’t as concerned with deductions as with whether the U.S.
moves to a territorial tax system, for instance, which would tax
U.S. multinational corporations only on what they earn at home,
not on profits repatriated from foreign countries.

A territorial system would be much more valuable to those
companies than corporate tax deductions, the lobbyist said.

$48 Billion

An Alcoa spokeswoman declined to comment and pointed to
ACT’s mission statement, which focuses on moving to a
territorial system. Aluminum companies as a group don’t have a
position on which approach Congress takes, said Matt Meenan,
spokesman for the Aluminum Association in Arlington, Virginia.

The American Iron and Steel Institute warned against
eliminating tax deductions, in an April 15 letter to the House
Ways and Means Committee’s tax reform working groups.

“As you are well aware, the key proposals for a reduction
in the statutory corporate tax rate call for reducing the
statutory rate only to 25-28 percent and to pay for this rate
reduction by eliminating all or most corporate deductions and
credits,” wrote Thomas J. Gibson, the association’s president
and CEO.

“This is concerning to the steel industry, and should be to
the manufacturing sector as a whole,” he wrote, because some
analyses indicate that eliminating deductions to pay for rate
reductions would amount to a $48 billion tax increase for
manufacturers, while granting tax cuts to retail and financial
services industries.

Key Deductions

The steel group said some of the most important deductions
are accelerated depreciation, the Section 199 deduction for
domestic production and the interest expense deduction.

The Section 199 deduction should be increased, the group
urged, while the qualifications are tightened to direct the
benefit more specifically to manufacturers.

On interest deductibility, the association wrote, “There
are a number of policymakers who have stated their support for
repealing or limiting this deduction because it favors debt over
equity which they believe should be reversed. We would caution
those who have taken this position that the end result will
likely discourage further investment in U.S. manufacturing.”

The Aluminum Association hasn’t lobbied on tax reform in
2013, according to reports filed with the House of
Representatives. Alcoa has.

The steel group lobbied on tax reform and other issues, as
did AK Steel Holding Corp. (AKS), for instance. The lobbying reports
don’t break down amounts spent on specific issues.

Tough Decisions

The Alliance for Competitive Taxation cited studies
questioning the value of some of the deductions. A study by the
Business Roundtable reported that for a highly profitable
investment, the benefit from a lower tax rate on profits would
exceed that of a deduction for accelerated depreciation.

That the coalition would consist of companies from a broad
range of industries reflects “their willingness to make tough
decisions, including getting rid of tax breaks and preferences,”
Doug Thornell, a strategist for the group, said in a statement
in response to BNA inquiries.

To contact the editor responsible for this story:
Cesca Antonelli at fantonelli@bloomberg.net