House Passes Tax Breaks for Gulf Coast Businesses

The House approved a multibillion-dollar package of tax breaks on Wednesday that are intended to revive Gulf Coast businesses destroyed by Hurricane Katrina. But the tax relief excludes the casinos and country clubs that underpin the area's leisure economy.

Lawmakers hurried to finish the long-promised tax breaks as Mississippi Gov. Haley Barbour testified that congressional failure to approve emergency money for roads, schools and housing construction was stalling rebuilding efforts.

Approved 415-4, the tax incentives for aiding the recovery faced better odds in a late flurry of activity than did a measure, also passed Wednesday by the House, that would protect millions of people from higher taxes next year because of the alternative minimum tax.

That tax was designed to prevent wealthy individuals from avoiding taxes, but now falls on an increasing number of middle-class families.

House Republicans planned to advance their tax priority, an extension of reduced rates for capital gains and dividends, on Thursday. Those tax cuts "significantly helped us rebound in this economy," said House Ways and Means Committee Chairman Bill Thomas, R-Calif.

Democrats have criticized capital gains and dividend tax cuts, which expire at the end of 2008, as worsening budget deficits to benefit the wealthiest taxpayers.

The incentives for Gulf Coast commerce include tax credits for low-income housing and rehabilitating commercial structures and historic buildings. Businesses could claim an additional 50 percent depreciation deduction for software, equipment and other expenses, and small businesses could write off more of their new investments.

Other tax breaks would help businesses recoup cleanup and demolition costs and aid small timber operations with reforestation.

The Bush administration has expressed concerns about a proposal to provide a 50 percent federal guarantee of municipal bonds, because it would not directly benefit hurricane victims and could increase federal borrowing costs.

The tax breaks would not extend to leisure industries, including country clubs, casinos, hot tub facilities, liquor stores, massage parlors, golf courses, racetracks and tanning parlors.

Rep. Frank Wolf, R-Va., led the effort to carve those businesses out of the bill. He said Congress should not allow "our constituents' hard-earned tax dollars, in these kinds of record deficits, to subsidize the rebuilding of a massage parlor, a liquor store or a casino."

Rep. Shelley Berkley, D-Nev., said she was "astounded" and "angry" that Wolf won on gambling establishments, an industry "that employs thousands of people in the region and generates millions of dollars in tax revenue."

The Senate passed $7 billion worth of business incentives for the Gulf Coast. It makes no exceptions for any businesses, and the exclusions face opposition from Senate Minority Leader Harry Reid, D-Nev., and others.

The House separately voted 414-4 to keep the alternative minimum tax from hitting more than 17 million individuals and families with higher taxes next year.

"It's been called the stealth tax, a ticking time bomb for the middle class, and even the Darth Vader of the tax code," said Rep. Tom Reynolds, R-N.Y.

The bill keeps in place a temporary measure, which otherwise expires at the end of the year, that prevents the tax from ensnaring additional people in 2006, saving them more than $31 billion.

Democrats said there's not enough time to complete the bill before the existing fix expires at the end of the year. They speculated that Republicans wanted to put themselves on record against the tax before next year's midterm elections.

"It's my impression that we're just going through this for political reasons," said Rep. Charles Rangel of New York, the top Democrat on the Ways and Means Committee.

The House also passed a bill extending a few other tax breaks that expire at the end of the year, including one that allows soldiers to apply their combat pay to the calculation of earned income tax credits, a benefit for low-wage earners.