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Studios Take Hit in Tax Bill

Three months after Hollywood slapped the Republican Party by hiring Democrat Dan Glickman to head its Washington trade association, Congressional Republicans sliced more than $1 billion in tax credits for movie studios from a far-reaching international tax bill that the House and Senate plan to take up today.

Though the tax credits for Hollywood were included in a version of the bill approved by the Senate this summer, a Republican-dominated conference committee voted Tuesday evening to leave the provisions on the cutting-room floor.

Led by Ways and Means Chairman Bill Thomas (Calif.) and Majority Leader Tom DeLay (Texas), House GOPers on the conference committee voted as a bloc to oppose the tax breaks, calling them bad policy and too expensive to be included in the $140 billion bill.

But other lawmakers, Congressional aides and movie industry lobbyists said Republicans refused to fight for the Senate tax credits in order to punish Hollywood for hiring Glickman, a former House Member from Kansas and secretary of Agriculture under then-President Bill Clinton, to head the Motion Picture Association of America.

“The Glickman thing is going to cost them. No Republican will fight for the movie industry,” said one GOP lobbyist for the industry.

Another Republican lobbyist added: “They were not overly helpful to Republicans, so Republicans don’t want to be overly helpful to them.”

Thomas, the chairman of the conference deliberations, declined to comment on the motivation for removing the tax credits for the movie industry.

“I don’t deal with rumors and unconfirmed reports,” he said.

DeLay said he voted against the provision because “it just cost too much.”

When asked whether the MPAA’s move influenced his vote, DeLay said that employment decisions in the private sector “don’t enter into our consideration. That’s the first time I ever thought of Glickman.”

A spokeswoman for the MPAA declined to comment on the vote.

Despite DeLay’s comments, Glickman was on the minds of other Republican lawmakers in the past few weeks as votes on the tax bill neared, according to Republicans on the Ways and Means Committee.

Before the vote, Rep. Mark Foley (R-Fla.), a key Hollywood advocate, said he worried that GOP resentment about Glickman’s hire could scuttle the tax credits for the studios.

“Thomas has said some things. I’ve heard a lot of grumblings. They have said that they thought that a Republican should have gotten” the job, Foley said. “Mr. Thomas has to acquiesce to the Senate language and right now that doesn’t look good with the lingering resentment. That’s probably a tough sell right now.”

Foley added that the movie studios “may get dealt a bad hand, but I’m not sure it’s based entirely on Mr. Glickman.”

Rep. Jim McCrery (La.), a top Republican on the Ways and Means Committee and a member of the conference deliberations on the tax bill, said he did not think Glickman’s hire was “a deciding factor” in the decision by Republicans to exclude the movie studio tax credits.

Still, he acknowledged that Republicans on Capitol Hill were upset the MPAA tapped a Democrat for the position.

“It’s a fact that the Republicans control the Congress and the Ways and Means Committee so it’s a good idea to have someone who can communicate with those who are in power,” McCrery said. “It’s a consideration that any organization hiring a lobbyist should take into account.”

At issue is an international tax bill being put together on Capitol Hill to replace $50 billion in U.S. export subsidies that have been struck down by the World Trade Organization.

Current law provides movie studios such as MGM, Universal Studios and 20th Century Fox with about $600 million a year in tax credits to export movies to other counties.

The tax incentive helped transform the U.S. movie industry into one of the nation’s leading exporters, surpassing exports of Boeing’s jets and Detroit’s autos, according to figures provided to Congress by the movie industry.

When the export subsidy was found to be illegal by the WTO, Hollywood figured to be one of the biggest losers. At issue was just how much they would lose.

The Senate version of the corporate tax bill would retain $350 million annually in export subsidies for the studios. The House bill, authored by Thomas, provided less than $100 million per year for the industry.

In a partisan vote Tuesday evening, Republicans on the conference committee rejected an effort by Sen. Max Baucus (D-Mont.) to include the Senate’s credits for the industry.

Senators on the conference committee voted 14-8 to add the credits, but House Members voted along party lines against the industry.

A majority vote of both chambers is needed to add amendments to legislation in conference committee.

Some were quick to point out that Republicans had legitimate policy reasons to vote against the credits.

Grover Norquist, the president of Americans for Tax Reform, said there were three reasons Republicans voted against the movie industry provisions: “One, it’s bad tax policy because it’s industry specific. Two, it’s bad tax policy because it subsidizes an industry for signing bad labor contracts and, three, Hollywood has recently expressed contempt for the Republican leadership in the House, Senate and White House.”

Well before the Glickman hire, Republicans on Capitol Hill have been unhappy with Hollywood and its Washington trade association.

Since 1990, U.S. movie studios and Hollywood executives have contributed $42 million in political donations to Democrats, while giving just $6 million to the GOP, according to figures from the nonpartisan Center for Responsive Politics.

After controversial documentary filmmaker Michael Moore began promoting “Fahrenheit 9/11” this spring, GOP bitterness against Hollywood spilled over in a closed-door Republican meeting.

During the meeting, Manzullo complained that the international tax bill being crafted by Thomas and the Ways and Means Committee included expensive tax breaks for the movie studios while small businesses and manufacturers were losing thousands of jobs.

“Why should we vote on an international tax reform bill that rewards Hollywood while disadvantaging our nation’s manufacturers,” Rep. Don Manzullo (R-Ill.) asked in a letter he sent to his colleagues.

Other Members agreed. Thomas quickly watered down the industry’s tax credits and the situation seemed to go away.

But Hollywood infuriated Congressional Republicans again in early July when the MPAA announced its hire of Glickman.

Two weeks after Glickman was hired, Sen. Rick Santorum (R-Pa.) convened a meeting of top Republicans to discuss the move.

In the weeks leading up to the tax vote, Republicans continued to whisper about punishing the MPAA. As a result, Glickman has let it be known that he is looking to hire a big-name Republican lobbyist to join him at the MPAA after the November elections.

In the meantime, supporters of the industry on Capitol Hill, like Foley, hope the whole thing will blow away. “There may be a few people’s noses out of joint, but people get over these things pretty quickly,” Foley said.