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The Kansas City Star

KU Professors Found Companies Realized Big Tax Savings by Spending for Lobbyists

Dave Helling

A 22,000 percent return on investment?

Three professors at the University of Kansas say dozens of America's largest companies got that sweet deal four years ago - not by hiring workers or purchasing new equipment, but by investing in Washington lobbyists.

Those lobbyists, the three said, helped write a federal tax break that eventually put roughly $100 billion in tax savings in the pockets of the firms and their shareholders, at a cost to the companies of just pennies on the dollar.

Stephen Mazza, a professor at KU's School of Law, and two associates spent six months examining the effects of one part of the American Jobs Creation Act, a major tax overhaul passed in October 2004. They looked at a provision that gave companies a one-year window to bring overseas earnings back into the U.S. at a 5.25 percent tax rate, rather than the usual 35 percent, as a jobs-creation incentive. The three professors then looked at how much such companies as IBM, Pfizer, and Eli Lilly and Co. spent lobbying for the break, and how much they saved when it passed.

The result? Ninety-three of the country's biggest multinational firms pulled in tax savings of more than $62 billion - after spending just $283 million to lobby for the bill.

The study concluded that almost 500 companies got an average 22,000 percent return on their lobbying investments.

"Is this how you want policy enacted?" asked Bill Allison of the Sunlight Foundation, which watches political spending and lobbying. "Whoever has the biggest access to lobbyists and to Washington insiders gets the tax relief?

Sheila Krumholz of the Center for Responsive Politics, a group that monitors political spending, said the big companies' lobbyist spending could drown out other voices.

"Is policy being decided on the merits, or is it being unduly influenced by the money spent?" she asked. "And then do the non-moneyed interests ... lose a valuable seat at the table?"

Others, though, maintain that the companies and the lobbyists were doing what they were supposed to do, for employees, customers and taxpayers.

"The government is doing something to you or for you every day here in Washington," said Dave Wenhold, president of the American League of Lobbyists, a group that lobbies for lobbyists. "If you don't have somebody watching out for your interests, it could prove dangerous to your organization."

Wenhold said the KU study may distort the impact of lobbying because it singles out a huge tax provision used by major corporations with billions in revenue. Most lobbying, he said, involves issues with far less money at stake.

Professor Mazza agreed with that position - to a point.

"It could be that lobbying for tax purposes is different from lobbying in other areas," he said. "The payouts are going to be significantly higher in the tax area."

Other critics of the study said the change in tax law made sense, with or without lobbying help. Without the change, they noted, the overseas earnings of the companies would have remained overseas, costing the Treasury billions in revenue.

"It doesn't take a rocket scientist to figure why businesses have an incentive to look for tax savings," said Pete Sepp of the National Taxpayers Union. "Over $300 billion in profits held overseas were brought back here ... It sure beats doing a favor for some other country's economy by letting the money sit abroad."

Lobbyists, of course, don't limit their activities to tax and finance issues. They argue about gun control, abortion, education and hundreds of other causes with far less money at stake.

Like administrations before his, President Barack Obama's has tried to limit the influence of lobbyists by imposing tougher regulations on who can and can't lobby in and out of the White House.

But the industry remains strong. Companies and interest groups spent more than $3 billion lobbying Congress and the federal government in 2008, according to the Center for Responsive Politics. That was a 14 percent jump from 2007.

Lobbyists argue that there is a reason for all the special interest cash: It gets the job done.

"There's literally no way that you can take an action in Washington by simply coming to town and sitting around on street corners waiting for it to happen - you really do have to have professional help," said former congressman Robert Walker, whose firm lobbies heavily on transportation, health care, energy and trade matters. "It would be like going to court without a lawyer."

Others say lobbying is required on tax and spending issues because the tax code is so complex.

"If anyone's to blame for this situation, it's Congress," Sepp said. "If lawmakers would give up their habit of using the tax system as a political weapon and making the whole thing simpler, we wouldn't even be having this debate."

But Allison of the Sunlight Foundation said the problem was not just the tax system, it was the access that big money buys for big taxpayers.

"Any citizen can hire a lobbyist," he said. "But even if we all banded together, we're not going to get a huge tax break."

Mazza acknowledged that his study did not mean the lobbying for the 2004 tax break was improper or illegal, although he cited other work that suggested the companies getting the deal didn't hire more workers but handed the money over to stockholders.

"The tax break created jobs," he said, "but it created them in the lobbying industry."

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