Congress Still Hot on Tech Agenda

The House and Senate are battling to session's end on new Internet access tax moratorium and blocking stock option expensing.
Posted October 7, 2004
By

Roy Mark


WASHINGTON -- Republican House and Senate leaders predicted Wednesday there is still life in the flagging high-tech agenda, even as the 108th Congress prepares to adjourn on Saturday.

With only a couple of days left in the regular session, conferees from both parties in the House and Senate are hammering out last-minute compromises on several key tech measures, including an extension of the Internet access tax moratorium, which expired last November, and a reduction of the foreign dividend tax from 35 percent to 5.25 percent for one year.

Both measures are expected to pass with little or no opposition in a full floor vote.

Equally important to the tech lobby is pre-empting a proposed federal accounting regulation calling for corporations to deduct the cost of all employee stock options from their profits.

Both the House and the Senate have passed legislation approving a new tax ban on Internet connections, but the differences between the two measures are considerable. The House favors a permanent extension and removes the grandfather clause for states that were taxing dial-up or DSL connections when the ban was originally passed in 1998.

The Senate version proposes a four-year package that keeps the grandfather provisions. Although the House bill passed in September of last year and the Senate legislation was approved in April, the two chambers have been unable to reach a compromise.

"We're working this week to resolve the differences," House Speaker Dennis Hastert (R-Ill.) told the second annual High Tech Summit sponsored by the Information Technology Industry Council (ITI). Sen. John Ensign (R-Nev.) said the House "did the right thing" in making the ban permanent, but differences in the Senate over the impact of the bill on cash-strapped states dictated a compromise.

Hastert also told the gathering in the ornate Cannon Caucus Room he believed the foreign dividends tax break could be approved by as early as Thursday. Like the Internet access tax ban, both houses have passed different versions and have been negotiating a compromise for weeks.

Part of a much broader, complex bill aimed at halting European Union trade sanctions, tech proponents say the tax break will "repatriate" more than $300 billion into the U.S. economy and create as many as a half million new jobs. Critics of the provision say it rewards companies for shipping jobs overseas.

The House took the lead on stock option expensing in July, passing legislation to block a controversial proposal by the Financial Accounting Standards Board (FASB). In the aftermath of accounting scandals at Enron and WorldCom, the FASB in March proposed to require publicly traded companies to expense all forms of share-based payments to employees.

The FASB proposal is set to become a standard accounting practice after Dec. 15 and has drawn the support of Federal Reserve Chairman Alan Greenspan, Securities and Exchange Commission (SEC) Chairman William Donaldson and billionaire investor Warren Buffett.

Stock options have long been a popular form of compensation for tech-industry employees, particularly for start-ups with little cash to attract talent. TechNet, the influential 150-member exclusive network of technology CEOs and senior partners founded by venture capitalist John Doerr, has lobbied hard to overturn the FASB ruling.

The House bill mandates the expensing of stock options granted to the CEO and the next four most highly compensated officers of a company, but exempts the expensing of stock options for all other employees. It also allows newly incorporated companies to delay any expensing of stock options for three years and requires the SEC to develop additional stock options-related disclosures.

The legislation has drawn little interest in the Senate, and Hastert said it was time for the Senate to "step up." Ensign, who is chairman of the Senate Republican High Tech Task Force, said that was not likely, but that he was spearheading an effort to convince the SEC to grant a one-year delay in the FASB proposal.

"If [the SEC] does that, we don't need to do anything," Ensign said. "If they block FASB on a one-year deal, we can work on this next year."

He said he was preparing a letter to the SEC signed by more than 30 senators urging the delay.

Opponents of the FASB standard contend that expensing all stock options will result in misleading income statements since it is difficult to assign a certain value to stock options and discourage companies from granting options to employees.






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