WASHINGTON -- Repeal of the federal estate tax is at the top of the food industry's legislative agenda for the newly installed Congress, but supermarkets may not get their wish granted this year.
However, the food-distribution industry may have a good shot at convincing Congress this year to rework a new country-of-origin meat and produce labeling law, which has saddled retailers and suppliers with potentially billions of dollars in increased paperwork.
Renewing WIC -- the Women, Infants and Children nutritious food federal reimbursement program -- and expanding it to include more types of food, including private-label products, are also on the industry's Capitol Hill must-do list. Another priority for the industry is securing a federal prescription drug benefit to include retail pharmacists.
It is repeal of the estate tax that's still garnering a lot of industry attention, even though it appears to be off the near-term congressional agenda.
The supermarket industry was counting on President Bush to press Congress for repeal of the tax, one of his pet causes. But repeal wasn't included in Bush's $674 billion proposal in January for lawmakers to reduce taxes and stimulate the economy.
"I wasn't surprised it didn't make this package," said John Motley, senior vice president of government and public affairs at the Food Marketing Institute here.
White House officials said their decision not to call for repeal this year is a part bookkeeping, part political strategy in this new Congress, which is seen as one of the most contentious between Republicans and Democrats in recent years.
If the president had included repeal in his economic stimulus/tax-cut plan -- and it passed -- under Senate budget rules, the chamber in 10 years would have to vote again on repeal. That's the same dilemma that estate-tax repeal backers are already facing, since Congress voted two years ago to repeal the tax and phase it out over 10 years.
The White House could press for permanent repeal outside of the Senate budget rules, but it appears the political -- and economic -- climate isn't ripe to lobby for the change. Because of the economic downturn, there are fewer taxes filling federal coffers so a budget deficit is mounting, being made worse by added costs created by the war on terrorism.
For the time being, the billions of dollars' cost of permanent repeal of the estate tax is widely seen as not being politically palatable, particularly in the Senate where Democrats and moderate Republicans are maneuvering to curb tax cuts.
The president "wanted to try for something permanent later," Motley said. "I think 2004 is the year the president and supporters of this issue on the Hill will try to make it happen because it is an [election year] when you'll want to deliver things to people in your political base," which for moderates and conservatives in either party includes small business, a huge estate-tax repeal constituency.
But that doesn't mean the supermarket industry and permanent estate-tax repeal backers are ignoring the issue this year. Longtime repeal bill sponsors Rep. Jennifer Dunn, R-Wash., and Sen. Jon Kyl, R-Ariz., have introduced permanent repeal bills and are gathering co-sponsors. However, passage still is seen this year as an uphill battle.
Tom Wenning, vice president and general counsel of the National Grocers Association, Arlington, Va., said support in Congress in both parties for permanent repeal of the estate tax remains strong.
"There is general widespread agreement it's an unfair tax that harms family-owned businesses that need capital to grow and remain in business," Wenning said.
Despite this support -- and expectation permanent repeal could pass the Republican-controlled House this year -- it would likely face a roadblock in the Senate where the GOP also holds a narrow two-seat majority. There are enough moderate Republicans joining with Democrats to throw repeal into doubt.
David French, senior vice president of government relations at the International Food Service Distributors Association, Falls Church, Va., said permanent estate-tax repeal will eventually happen.
As the estate tax is winnowed down through its current 10-year phaseout, "I don't think anyone in Washington really believes Congress will allow in 2009 a big tax increase" by reinstating the estate tax, French said. "The question is: When do you make it permanent?"
The issue of estate-tax repeal aside, the supermarket industry is rallying behind the president's $674 billion plan to reduce taxes over 10 years as a means to stimulate the economy. Bush's controversial proposal -- coming on the heels of $1.3 trillion in tax cuts approved two years ago -- is meeting a headwind, particularly in the Senate.
The $300 billion centerpiece of Bush's plan calls for elimination of most taxes on stock dividends, a move supported by the supermarket industry as encouraging stock market investment in its companies and, crucially, putting money in consumer pockets. The president's tax proposal also increases by $400 the per-child tax deduction, which is now $600, and would eliminate the so-called marriage tax penalty paid by couples.
Overall, the White House estimates the tax-cut package would create 2.1 million jobs over three years and inject $200 billion into the economy the first year.
"Since the economy is so highly dependent on consumers and consumer spending, encouraging consumer spending until the business side picks up and growth spending starts makes sense," said Bob Mariano, chairman and chief executive officer, Roundy's, Pewaukee, Ill.
Jack Brown, chairman, president and CEO, Stater Bros. Markets, Colton, Calif., called the president's proposals "outstanding and the effect on the economy will be immediate."
However, Bush's tax-cut proposal is expected to be changed as it competes with a $136 billion stimulus package offered by Democrats and targeted to be spent only in 2003. The Democratic plan includes: a $300 per person or $600 a couple tax rebate for all workers; an increase in new plant and equipment depreciation for the year; and $31 billion in funds to states and locales to spend on homeland security, highways and other "critical needs."
Meanwhile, as the how-to-stimulate-the-economy debate is unveiled, the supermarket industry plans to lobby lawmakers to rework a country-of-origin labeling law passed last year in a massive farm bill. Voluntary regulations requiring the labels become mandatory in 2004.
The supermarket industry plans to return to lawmakers and restate their original argument, which is now panning out: The labeling law is creating logistic problems and costs are enormous. For paperwork alone, government regulators estimate the cost from farm to retailers to document the country of origin of produce or meat would cost $2 billion the first year and $1.6 billion a year after that.
To cope with the regulations, retailers in general are requiring suppliers to provide the country-of-origin labeling, and producers -- many of whom wanted the labeling -- are getting hit with much of the new costs.
FMI's Motley said he hopes producers and retailers can form a coalition to press for changes in the labeling law, including a rule that origin records be kept for two years.
Meanwhile, food manufacturers plan to continue pressing for their long-term goal of a national food-labeling uniformity. Manufacturers are concerned about state labeling requirements impeding interstate commerce of their goods and increasing costs.
Susan Stout, vice president of federal affairs at the Grocery Manufacturers of America here, said the issue was gaining strong support in 2001 until the Sept. 11 terrorist attacks. This year she said the industry hopes to reinvigorate the issue again.
In general, Stout said the GMA will be monitoring any discussion in Congress about increased obesity among Americans and try to head off any regulations of the food industry.
Three Top Industry Priorities for Congress
Permanent Repeal of Estate Tax
The estate tax, first introduced as a temporary emergency measure designed to raise revenues during time of war and break up large concentrations of wealth, was repealed with President Bush's signing of a tax-cut package in 2001. However, a "sunset" provision in the bill allows the measure to be reinstated in 2011 if it is not granted permanent repeal.
The measure continues to shadow the industry, especially for family-owned independents that face going out of business if high death taxes are levied. While Bush supports permanent repeal, politics and economic conditions will force permanent repeal onto the back burner. Look for some action by the Bush administration in 2004, an election year.
Country-of-Origin Labeling
In an era of global sourcing and food safety, a country-of-origin labeling provision was included in the 2002 Farm Bill to inform consumers of the origin of the produce, meat and fish they buy. Under the provision, the labeling will become mandatory on Sept. 30, 2004.
The industry says instituting the labeling law will cost the industry $2 billion in the first year alone. It also involves burdensome paperwork and record keeping. Lawmakers will be lobbied to revise the mandate.
Economic Tax Stimulus Package
President Bush's package, unveiled earlier this month, is designed to spur economic recovery and reinvigorate the stock market by further tax cuts, including no tax on cash dividends companies pay to shareholders. The plan will cost the government $674 billion over 10 years.
The plan, generally favored by the industry, is meeting Democratic and conservative Republican resistance. The Democrats proposed a tax-cut plan of their own. In light of rising federal deficits and a possible war with Iraq, expect a scaled-down version.
