Tax Rewrite’s Congressional Twins Take Pitch to Minnesota
Congress’s top tax-writers usually chat in the Capitol, in offices just steps from the House and Senate floors. Today, Senator Max Baucus and Representative Dave Camp are 1,100 miles away, trying to build public momentum for a tax-code rewrite amid many obstacles back in Washington.
Baucus, a Montana Democrat, and Camp, a Michigan Republican, brought their partnership to the headquarters of 3M Co. (MMM) to learn about the company’s technologies and products such as flexible transparent film.
“We really are a team,” Baucus said as he addressed employees at 3M’s corporate campus in Maplewood, Minnesota. “We’re just here to listen, to get your thoughts and ideas.”
Baucus, chairman of the Senate Finance Committee, and Camp, who heads the House Ways and Means Committee, are making the first stop on what they call their national “tax reform tour.” They are attempting to rally support outside their own hometowns and the nation’s capital.
“If there’s ever a place to find a solution, it’s here,” Camp said at 3M, where executives talked about how they helped American Express Co. (AXP) fix clear credit cards that weren’t being recognized by infrared scanners in automated teller machines.
Baucus and Camp held a closed-door meeting with 3M executives, sat in recliners under a planetarium-like “vision dome,” toured the company’s Innovation Center and took questions from employees about international taxation and gridlock in Washington. They arrived dressed almost identically, in navy blazers, gray slacks and blue dress shirts without neckties.
Baucus and Camp have been developing a working relationship and a friendship. At one point today, they clasped hands for effect; Baucus held open a car door for Camp. They repeatedly deferred to each other, with each insisting the national tour was the other’s idea.
“There is a bit of a bubble in Washington,” Baucus said.
“There will be partisan differences, but ultimately there will be a bipartisan bill,” Camp said.
3M, which makes products as diverse as Scotch tape, Filtrete air filters, stethoscopes and reflective sheeting for traffic signs, has been urging Congress to reduce the 35 percent corporate tax rate.
It’s one of the few multinational corporations that have offered to give up some of their most valuable tax breaks -- such as the research and development credit and accelerated depreciation -- in exchange for lowering the corporate tax rate to 25 percent.
In a statement this year to the Ways and Means Committee, the company acknowledged that many businesses benefit from tax breaks that could disappear in a tax-code revision.
“These credits and deductions, however, often fail to adequately encourage the behavior they were designed to incentivize and often create competitive imbalances between U.S. companies,” the company said.
Baucus said today that the goal of a 25 percent corporate tax rate was “a bit of a stretch.”
3M, which operates in more than 70 countries and made about 65 percent of its $29.9 billion in 2012 sales outside the U.S., is also lobbying for changes to how the U.S. taxes multinational companies’ foreign income.
Many U.S.-based multinationals, including 3M, want Congress to create a so-called territorial system, which would enable them to face minimal U.S. taxes on money they earn outside the country.
Under current law, U.S. companies are taxed on their worldwide income, after getting tax credits for payments to foreign governments and only when they bring foreign earnings to the U.S. That has led U.S. companies to stockpile untaxed overseas earnings outside the country. According to its most recent annual filing with the Securities and Exchange Commission, 3M has $8.6 billion outside the U.S.
Camp, arguing that the U.S. is out of step with other countries, plans to include a territorial system in the tax code rewrite that he says will be approved by his committee this year. Baucus has been less specific.
“It’s a dynamic world out there, and our tax code is static,” Camp said.
In its statement to the committee, 3M expressed concerns with part of Camp’s approach -- a 5.25 percent transition tax on those accumulated earnings that would finance the shift to the new system.
That tax, the company said, shouldn’t be imposed on “assets used in active businesses” in other countries, as opposed to cash or other liquid holdings. 3M reports holding $3.7 billion in cash and equivalent assets outside the U.S., or less than half its untaxed foreign earnings.
3M has courted ties to Baucus and Camp. The company’s political action committee has donated to both men over the past five years, including $4,500 for Camp’s 2012 campaign and the same amount for Baucus when he last sought re-election in 2008.
Camp is an investor in the company; he owns between $50,000 and $100,000 in 3M corporate bonds, according to congressional records. He sold between $15,000 and $50,000 in 3M stock holdings in 2011. Baucus reports no investment in 3M.
Later today, the duo went to Baldinger Bakery in St. Paul, a 125-year-old business that makes buns for McDonald’s Corp.
The lawmakers toured the bakery, marveling at technology that produces more than 5,000 dozen buns per hour. Baucus, who called himself a “kind of a science nerd” at 3M, couldn’t resist using the bakery’s automatic hand-washing machine, despite warnings of soaked sleeves.
Steve Baldinger, the president of the bakery, which has about $30 million in annual revenue, donates to Republicans, including Representative Erik Paulsen of Minnesota, a Ways and Means member.
The bakery’s $30 million expansion was financed in part with a New Markets Tax Credit that meant a $4 million benefit for the company, Baldinger said. That’s exactly the kind of tax break that Baucus and Camp have been talking about ending to pay for lower tax rates.
Baucus, 71, and Camp, who turns 60 tomorrow, have been forging a working relationship as they try to prod their colleagues toward a tax proposal that would curtail tax breaks and lower marginal rates.
They face the same deadline -- Jan. 3, 2015, when Baucus’s final Senate term ends, as does Camp’s tenure as Ways and Means chairman.
“This is the last hurrah for both of them,” said former Senator John Breaux, a Louisiana Democrat who was co-chairman of a 2005 presidential tax-rewrite panel. “Professionally, there’s a great relationship. They both want to get something done.”
Trying to invoke the spirit of the 1986 tax rewrite, they convened a burgers-and-beer summit last month at a Capitol Hill bar where, over two pitchers of beer, then-Finance Chairman Bob Packwood of Oregon legendarily wrote a tax plan on a napkin.
This time around, the pitchers weren’t emptied and the breakthrough didn’t occur. Baucus and Camp plan another lunch together tomorrow.
Even as the tax chairmen work together, the partisan gridlock in Congress threatens to thwart their efforts. Baucus and Camp have postponed a resolution to the biggest divide between them -- whether a rewritten tax code should raise more money for the government.
Baucus, who voted against his own party’s budget in part because he believed its tax increases were too big, supports more revenue. He will have trouble getting Senate Republicans to give up their procedural power to block any bill that raises money.
Camp plans to produce a revenue-neutral bill. Similarly, he could face difficulties if some House Republicans object to parts of his plan and he has to court Democrats who insist on a revenue increase.
The lawmakers haven’t announced the locations of any additional trips. They plan to make one-day visits this month and in August as they work around the congressional schedule.
“Visually, it may be a good thing to do,” said Breaux, now a lobbyist at Patton Boggs LLP (1211L), whose tax clients include Citigroup Inc. and Prudential Financial Inc. “But I’m not sure you’re going to learn anything you haven’t learned from years and years of experience.”
The real challenge, he said, is inside Congress, in getting deadline-driven, crisis-driven lawmakers to want to rewrite the tax code.
“You have to have something motivating,” said Breaux, who left the Senate after not seeking re-election in 2004. “Bad politics, good policy. Politics wins.”
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