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Skirmish Over Tax Breaks Is Waged in the Shadows

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THE time was nearing 3 a.m. on Thursday, June 24, as the United States Senate prepared to wrap up a grueling debate on President Clinton's economic package. Just one minute before the end of the debate, Sens. John McCain (R) of Arizona and Daniel Inouye (D) of Hawaii proposed an amendment that would create a tax break for companies that invest on Indian reservations where the unemployment rate is particularly high.

The Senate quickly passed the amendment on a voice vote before voting on the rest of the economic plan. Yet what many of the senators may not have realized was how the $212 million tax break for Indian reservations would be financed: through a corresponding reduction in section 936 of the Internal Revenue Code.

What, you ask, is section 936? That's the part of the tax code that gives a large tax deduction to companies that invest in Puerto Rico.

The House had already drastically scaled back section 936, but the Senate had kept more of the tax deduction in place after an intensive lobbying campaign by Motorola Inc., General Electric Company, PepsiCo Inc., and other large corporations that benefit from the tax break.

Their cause was championed by Sens. Bill Bradley (D) of New Jersey and Daniel Patrick Moynihan (D) of New York, whose states are the homes of many of these corporate giants and many voters of Puerto Rican ancestry.

So why did Senator Bradley and other supporters of section 936 allow a last-minute amendment to effectively reduce the size of the Puerto Rico tax break? One Senate staff member says that supporters of section 936 were afraid of a recorded vote.

"Nobody wanted to cast a vote that would deny help to [American Indians] at the expense of the most profitable corporations who happen to be based in Puerto Rico," this staffer says.

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