Lawmakers Bump Tobacco From FDA Cover

House and Senate negotiators defeated an effort Tuesday to have the Food and Drug Administration (search) regulate tobacco products. The proposal was part of a corporate tax bill that would provide $130 billion in new tax breaks to businesses.

House negotiators rejected the idea, which had been included in a Senate version of the tax bill introduced in the conference committee trying to blend the two bills to go before the House and Senate for passage.

The Senate had linked tobacco regulation (search) to legislation that would pay tobacco producers about $10 billion to give up their government quotas that determine how much of the crop they can produce.

Senate supporters of FDA regulation were expected to make an attempt Wednesday to strip the buyout provision from the compromise bill before it comes up for approval by the conference committee.

After a day of debate in which House Republicans were able to defeat all but two minor amendments offered by the Senate to the overall tax package, supporters of the bill expressed confidence that the committee will wrap up its work Wednesday and report out a completed bill that can be taken up in the House on Thursday and the Senate probably on Friday.

But Sen. Max Baucus, D-Mont., the top Democrat on the Senate Finance Committee, said the defeat of FDA provision may prompt efforts to stage a filibuster to delay Senate passage of the measure until after Friday, the day lawmakers were hoping to adjourn to hit the campaign trail.

The debate over tobacco was the most contentious battle in the conference committee that is trying to reconcile differences between the two chambers on legislation needed to end a trade dispute with Europe.

That dispute is subjecting 1,600 U.S. farm and manufactured goods exported to Europe with punitive tariffs that increase every month that Congress fails to repeal an export subsidy the World Trade Organization (search) has ruled is illegal.

The failure of supporters to get FDA regulation of tobacco raised doubts about the fate of the bill as some senators have raised the possibility they might mount a filibuster to block its passage.

Sen. Edward Kennedy, D-Mass., who offered the FDA provision, said the failure to add it to the bill would seriously jeopardize passage of the overall corporate tax bill in the Senate.

Supporters of the overall measure argued it is needed to keep American exporters from losing more business in Europe because of the rising tariff penalties.

Rep. Bill Thomas, R-Calif., chairman of the House Ways and Means Committee, and Senate Finance Committee Chairman Charles Grassley, R-Iowa, want to wrap up work quickly so the legislation could be passed by both houses of Congress before the weekend.

Supporters of the legislation also faced questions raised by the Bush administration in a letter written by Treasury Secretary John Snow. Snow complained that both the House and Senate versions of the bill "include a myriad of special interest tax provisions that benefit few taxpayers and increase the complexity of the tax code."

With an eye toward the Nov. 2 election, the tax measure was loaded with a wide array of tax breaks for farmers, fishermen, filmmakers and a wide array of U.S. businesses.

Makers of ethanol (search), the gasoline additive produced from corn, would get new tax breaks, as would hunters who use bows and arrows and fishermen who find fish with sonar devices.

The major element of the bill would repeal a $5 billion annual subsidy received by hundreds of American companies, which the World Trade Organization has ruled an illegal export subsidy.

Until Congress repeals the subsidy, specific U.S. exports to Europe are being hit by a 12 percent punitive tariff that increases by 1 percentage point per month.

In place of the banned subsidy, Congress has devised new tax breaks that total more than $130 billion over 10 years. The biggest element of the package is a tax deduction, which would cost $76.5 billion over 10 years, that is meant to bolster the country's beleaguered manufacturing sector. U.S. manufacturers have lost almost 3 million jobs over the past four years.

The definition of manufacturing has been broadened under the bill, to include not only traditional factories but also construction, engineering and architectural firms, even moviemakers.

The bill would reinstate deductibility of state sales taxes on individuals' federal income tax returns, a provision that is popular in the seven states that do not have state income taxes.

Despite the tax breaks, the bill would not increase the federal deficit because it would compensate for the lost tax revenue with a series of proposals to close various tax loopholes, mainly dealing with corporations.