Cider Makers Hope to Tap Tax Peelback

WASHINGTON — A few months ago, Vermont’s pint-sized cider-making industry decided it had a taxing problem: There was a clear market for “draft” cider--made from culled apples--as an alternative to beer, but it was hard to sell at current prices, which were inflated by a stiff federal excise tax.

So, 20 to 25 small manufacturers went to Vermont’s two senators, Democrat Patrick J. Leahy and Republican James M. Jeffords, with a “bipartisan” proposal: They asked Congress to pare the $1.07-a-gallon tax on draft cider to 22.6 cents, lower than the levy on their main rival, beer.

After months of lobbying, the cider lobby squeezed out a response. With the help of New York’s Sen. Daniel Patrick Moynihan, a Democrat, an amendment to the budget deal was pushed through that would accomplish the cider makers’ goal with a minimum of fuss and publicity.

The provision is one of 79 special-interest amendments that have fewer than 100 beneficiaries--from the Big Three automobile makers to a well-connected Texas sugar-beet cooperative--contained in the tax bill that lawmakers sent to President Clinton this week.

Now, under a 1996 law that enables him to veto specific provisions of a bill without rejecting the entire piece of legislation, Clinton has the power to scratch any of them from the law. Whether he will do so remains to be seen. For now, the White House is playing coy.

Congressional strategists insist there is no reliable estimate of how much such special-interest breaks will cost taxpayers over the next few years. Under the law, Congress is required only to list such provisions. It need not--and has not--disclosed who will benefit or how much they will cost.

Robert S. McIntyre, director of Citizens for Tax Justice, a liberal research group, said such special-interest provisions--traditionally dropped into tax legislation with no formal hearings or advance notice to the public--are inherently unfair. “Others don’t have that access,” he says.

Not all the bill’s tax preferences are as egregious as critics suggest. The tax break for the automobile manufacturers, for example, would let General Motors Corp. avoid taxes on the cost of developing an electric car that could help reduce pollution.

Another, requested by the Clinton administration as well as by some pharmaceutical firms, would rejigger tax rates to provide a uniform rate on profits from the development of vaccines against measles, mumps, rubella and other diseases. Some firms would pay more in the process.

And several merely extend provisions in existing law--previously enacted tax credits for research, stock contributions to private foundations and pharmaceuticals--that would have expired. Most critics have no problem with these either.

But there are others, including one that would allow Dallas sugar baron Harold Simmons to defer taxes on profits from the sale of his sugar refinery to a sugar-beet farmers’ cooperative. Cost to the taxpayers: about $104 million.

*

Senate Majority Leader Trent Lott pushed through a provision to allow county clerks in his home state of Mississippi to deduct some business expenses that were not deductible under previous law. The measure could affect local officials in other states as well.

An eleventh-hour amendment will let Amtrak claim $2.3 billion worth of tax refunds dating to 1913--decades before it even existed--based on losses accrued by the bankrupt private railroads that Amtrak replaced, even though the railroads never actually were part of Amtrak.

Another, according to congressional strategists, would allow Sammons Enterprises Inc., a closely held Texas company, to claim a charitable deduction on portions of the estate of its deceased owner that were left to the firm’s employee stock ownership plan.

And still another would allow American life insurance companies and securities firms to defer taxes on any income they may earn from overseas transactions. The list provided no revenue estimates for the latter two provisions.

Other amendments would provide software makers with tax breaks to encourage exports, let service-station chains sell gasoline to local governments tax-free and cushion farmers against losses from new accounting rules.

To be sure, some special-interest provisions did not make it on the list of 79. The congressional Joint Committee on Taxation, which compiled the list, stuck to the letter of the law, which requires it only to cite provisions that benefited fewer than 100 taxpayers.

So, for example, a $280-million amendment to liberalize international tax rules for Amway’s two Asian affiliates was not included in the compilation, even though, as Rep. Pete Stark (D-Hayward) pointed out, Amway officials “gave two $500,000 checks to the Republican Party.”

A proposal to extend a tax break for the manufacture of ethanol--targeted to a longtime political contributor, the Archer-Daniels-Midland Co. and widely considered one of the most unneeded tax subsidies on the books these days--was defeated, though Vice President Al Gore said Friday that the administration would “continue the fight” to preserve it.

Meanwhile, the apple cider makers--and their congressional patrons--have no apologies. As Leahy pointed out when he introduced the provision in March, draft cider is made from culled apples, which are “the least marketable” of all.