If the Tax Overhaul Smells Fishy, It's Probably the Samoan Tuna Plant

By Richard Rubin Features Dow Jones Newswires

While partisans squabble over whether the Republican tax overhaul in Congress benefits the middle class or the wealthy, part of the proposed legislation is going over swimmingly in Pago Pago.

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The House plan, which would reinstate a tax break for a tuna cannery in American Samoa's capital city, could provide about $10 million a year to StarKist Co., the territory's largest private employer.

In addition to netting gains for Samoan tuna, lawmakers have festooned the 450-page House bill and its 515-page Senate counterpart with provisions involving microbreweries, bicycle commuters, orange growers in Florida, volunteer firefighters in Maine and a company that manufactures organic salad dressing.

In broad terms, the legislation seeks to overhaul and streamline the U.S. tax code and make the American economy more competitive. In practice, however, it's the sort of ambitious, fast-moving policy train that gives individual lawmakers leverage. To win support for the bill, congressional leaders sometimes allow members to hitch their own parochial wagons for the ride. That's a rare opportunity in the modern Congress, which passes plenty of symbolic measures renaming public buildings but little substantive legislation.

Decorating bills with small giveaways is as old as American democracy, of course, but these additions come at an especially awkward time. Congress is adding a slew of minor tax cuts and exemptions to a bill presented under the banner of tax simplification. "It runs against the purported narrative of the effort," said Robert Weissman, president of Public Citizen, a consumer advocacy group.

The potential extension of the American Samoa Economic Development Credit would help the tuna company's cannery, where 2,300 workers cook, clean and pack about 5,000 containers filled with Pacific Ocean fish annually. StarKist, owned by South Korea's Dongwon Industries, saw its targeted tax break lapse in 2016. The House bill would revive the credit and extend it through 2022.

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The credit's advocates say it is an economic imperative. American Samoa's other large cannery closed last year, citing reduced access to fishing grounds. StarKist says it is facing competition from subsidized firms in Thailand and China that pay lower wages. On top of the steady decline in American appetite for canned tuna, the end of the tax credit could tip the scales away from Pago Pago.

"For us to stay in American Samoa, this is very critical," said Andrew Choe, StarKist's president and chief executive officer. "This credit does help us to stay competitive."

The American Samoa provision is a rounding error in the U.S. shelf-stable seafood market and the tax bill, but it is an important priority for StarKist and American Samoa's nonvoting representative, Aumua Amata Radewagen.

Ms. Amata, a Republican, asked Ways and Means Committee Chairman Kevin Brady (R., Texas), to include the credit in his tax bill. He did. A spokeswoman for Mr. Brady said this provision and others for Puerto Rico and the U.S. Virgin Islands "recognize the unique economic circumstances" of the territories.

This may also be the moment Bob Forrester has been waiting for.

He's president and chief executive officer of the Newman's Own Foundation, which owns the food company specializing in salad dressing, pasta sauce, popcorn, salsa and other products. When its founder, actor Paul Newman, was alive, he donated the business profits himself, meeting the company's pledge to give its earnings away.

That's continued since Mr. Newman's 2008 death. In 2016, according to its tax form, the foundation took in nearly $38 million, donated $27 million to various charities and added to its reserves. But Mr. Forrester has a looming tax problem. Foundations like his aren't allowed to own operating businesses, and tax laws effectively would force divestment. Mr. Forrester says an IRS extension on enforcing that ban is scheduled to lapse in November 2018.

"This has hung over our head for so long," he said, describing years of pleasant, constructive meetings with members of Congress and their staffs. "I've really come away really appreciative of the people who do this stuff, and scratching my head, also."

The foundation reported spending more than $2 million on lobbying during that time, according to congressional records.

The provision was sponsored by Rep. Dave Reichert (R., Wash.), who said he was "encouraged" by Mr. Newman's vision for charitable businesses. It's in the House and Senate tax bills.

The House has already passed its bill. The Senate could vote this week and lawmakers are aiming to hash out differences by Christmas.

Microbreweries are hoping for a win, too. In the Senate bill, brewers would pay $3.50 per barrel in tax for the first 60,000 barrels of beer produced, half of today's rate. They would pay $16 per barrel -- down from $18 -- on up to 6 million barrels. Score one for craft brewing -- and against critics who say cheaper beer would lead to more car crashes and violence.

Also in the Senate bill, Florida growers affected by citrus greening, an incurable bacterial disease devastating the region, would get to deduct the cost of planting new trees immediately instead of spreading that deduction over time, according to the office of the provision's sponsor, Sen. Bill Nelson (D., Fla.).

Volunteer firefighters would benefit from a higher cap -- $6,000 instead of $3,000 -- on the money departments can set aside for them in so-called length of service awards. Those programs, used by about 20% of volunteer firefighters, have hit the cap in New York, Maryland and Virginia, according to the National Volunteer Fire Council.

And they've got an important advocate; the chief sponsor of the stand-alone Senate bill is swing-voting Susan Collins (R., Maine).

Some narrow provisions are tax increases, including one affecting bicycle commuters. Cyclists can now get up to $20 a month of their commuting costs reimbursed from employers without that counting as taxable income.

The Senate bill would end that benefit through 2025 while preserving similar advantages for parking and mass transit costs.

It's a "huge missed opportunity to have a real conversation," said Ken McLeod, policy director at the League of American Bicyclists.

But the provision's size -- at most $50 million over a decade -- might be an advantage in preserving it in final negotiations.

"In terms of what I think people will probably decide their votes on," Mr. McLeod said, "this is probably not going to be the issue."

(END) Dow Jones Newswires

November 27, 2017 15:26 ET (20:26 GMT)