Grassley Praises Momentum to Shut Down Tax Breaks for Sewer, Bridge Leases
WASHINGTON -- Sen. Chuck Grassley, chairman of the Committee on Finance, today praised the growing momentum toward shutting down abusive leasing tax shelters that allowcorporations to claim tax deductions for sewers, bridges and subways that are owned by foreigncountries or paid for with U.S. taxpayer dollars. The full Senate could take up Grassley’s leasingshelter shutdown measure as part of the Foreign Sales Corporation/Extraterritorial Income (FSC/ETI)legislation in early March.
“I put forward a fix of this problem last September, and the Finance Committee approved my fix,” Grassley said. “The following month, the Finance Committee further exposed these schemes,thanks to anonymous testimony by a brave leasing industry executive who was outraged by these abusive deals. Now the President, the Treasury secretary, and the leaders of the Senate Budget Committee are all on board. We all agree that leasing shelter transactions are trickery at the taxpayers’ expense. This great rip-off has to stop.”
Last October, Grassley’s Finance Committee hearing included testimony from an anonymous expert witness on how major U.S. companies receive huge tax deductions by pretending to lease the infrastructure of cities and foreign countries and then pretending to lease them back. These arrangements have resulted in U.S. taxpayers picking up the tab for a huge portion of Europe’s transit infrastructure and are now proliferating in cities across the country as tax shelter promoters shop their wares to cash-strapped local governments. The promoters are using the cities to defend their schemes by calling these deals “public-private partnerships.”
Grassley’s international tax reform and domestic manufacturing tax relief bill -- known generally as the FSC/ETI bill and specifically as the Jumpstart Our Business Strength (JOBS) bill– shuts down the loopholes that tax shelter promoters exploit for such leasing transactions. TheFinance Committee passed the bill on Oct. 1, 2003. Since then, Grassley announced that he willchange the effective date of his provision to Nov. 18, 2003, instead of the date of enactment, to dissuade a rush to market of last-minute deals designed to beat the legislation’s effective date.
Also, Grassley plans to modify his proposal to reflect new findings from the TreasuryDepartment showing that the leasing problem is far greater than previously known. The President’sproposed Fiscal Year 2005 budget includes Grassley’s proposal to clean up abusive leasing taxshelters, with an expansion to cover all foreign party leases and appropriate carve-outs. ThePresident’s proposal raises $33 billion over 10 years. In other words, the leasing shelters are expectedto deplete federal revenues by $33 billion over 10 years if Congress does nothing.
Last week, Treasury Secretary John Snow testified before the Senate Budget Committee thatthe leasing transactions are unacceptable tax avoidance schemes that “need to be stopped” andpledged to work with Congress to end the practice. Budget Committee Chairman Don Nickles saidhe and the panel’s ranking member, Kent Conrad, plan to take action to stop the tax avoidancepractice, according to media reports.
The full Senate could take up Grassley’s leasing loophole closer as early as the first week ofMarch when it considers the FSC-ETI bill. Grassley has asked Majority Leader Bill Frist to schedulefloor consideration of the FSC-ETI bill as early as possible to avoid European Union sanctions overthe FSC-ETI tax regime, which Grassley’s bill would replace. Based on his contacts with themajority leader, Grassley expects consideration as early as the first week of March.
“My initial bill came out before we had as much knowledge on these leasing deals as we havetoday,” Grassley said. “I’m grateful for the Administration’s focus on this issue. Not only has thePresident embraced this issue, but he’s also developed it in a substantive way and helped to draw thesupport of more key members of Congress. As a result, we’re closer to shutting off a spigot of taxabuse before it drains the Treasury dry.”
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