PENDING BILL WOULD GIVE HOLLYWOOD HAPPY TAX ENDING.

Byline: Lisa Friedman Washington Bureau

WASHINGTON - Billions of dollars in Hollywood tax breaks are stuck in the U.S. Senate like a screenplay that can't get out of rewrite.

Aides and lobbyists say there is little doubt the whopping corporate tax bill - packed with $170 billion worth of goodies for everyone from Los Angeles movie studios to Oldsmobile dealers to foreign dog-race gamblers - eventually will become law.

But local entertainment industry advocates say with runaway production draining an estimated $10 billion annually from the U.S. economy, passage can't come soon enough.

``Everybody is trying to get their piece of the pie. It's such a huge bill,'' said Leron Gubler, president of the Hollywood Chamber of Commerce.

``Hopefully, we can keep the entertainment provisions ... It would definitely amount to several billions of potential tax benefits to the entertainment industry.''

Gubler on Monday will lead a three-day lobbying blitz in Washington, D.C., to join forces with the Motion Picture Association of America and push for the quick passage of the legislation.

In addition to meeting with California Sens. Barbara Boxer and Dianne Feinstein, Gubler and other members of the Hollywood and Santa Monica chambers also plan to meet with top aides to House Ways and Means Chairman Bill Thomas, R-Bakersfield, and House Speaker Dennis Hastert, R-Ill.

The goal of the Jumpstart Our Business Strength Act, as it is called, is to repeal a U.S. tax code that provides about $50 billion in export subsidies.

The World Trade Organization has deemed the subsidies an illegal restraint of trade, and threatened $4 billion in sanctions if the U.S. does not change its laws to comply.

Repealing the law, however, carries with it the threat of a giant financial hit to manufacturing giants, high-tech firms and the entertainment industry.

In designing the new bill, lawmakers have tried to lessen the burden on exporters somewhat by replacing the subsidies with tax breaks.

In the past few months, however, lobbyists have pumped the bill with at least 140 new special-interest breaks and incentives, ballooning by about $70 billion.

The sweeteners, which are aimed at picking up supporters to win passage, include an $8 million tax break for makers of certain bows and arrow parts; $90 million in reforestation tax credits that timber companies have long sought; and, a provision Boxer sought to allow farmers and ranchers to take a 30 percent credit for the installation of irrigation equipment on land that has received drought assistance over the past three years.

``It's sort of suffocating under its own weight right now,'' Keith Ashdown, spokesman for Taxpayers for Common Sense, a Washington, D.C.-based government watchdog group, said of the bill.

In addition, senators still have dozens of provisions they want to attach, causing what lobbyists and aides predict will be a delay of at least another two weeks before the bill is brought to the floor.

``We're trying to work out a deal on amendments, to whittle the number down from 80, which is what we currently have, to single digits on both sides,'' said Jill Gerber, spokeswoman for the Senate Finance Committee.

Hollywood's take in the bill includes at least $1.2 billion in savings over the next decade as part of several provisions. One of them allows studios to expense up to $15 million in the first year of production of small and independent films in the United States.

Studios could expense an additional $5 million if a significant amount of production expenditures are incurred in low-income communities or in the Delta Regional Authority.

The Delta Regional Authority includes counties in Alabama, Arkansas, Illinois, Kentucky, Louisiana, Mississippi, Missouri and Tennessee.

California congressional aides noted that while $15 million to $20 million might not be a large savings for a big movie studio, it will help keep television production and small films in the United States.

A Senate Finance Committee report on the legislation predicted that the incentive will encourage producers to bring feature film and television production projects to cities and town across the United States today, thereby decreasing the runaway production problem.

Gubler called modifying the income depreciation an interesting approach to stemming runaway production.

``Anything that will make it easier to do production in the United States can have a positive impact,'' he said.

The provision also requires the Commerce Department to track and report on whether the tax break actually helps retain film production in the United States.

In addition, the legislation counts studios as manufacturers. This reduces for studios the top corporate tax rate from 35 percent to 32 percent.

Finally, Feinstein and Boxer have proposed an amendment that, if the Senate accepts, could exempt the entertainment industry from the bill altogether - saving it as much as $4.7 billion over the next 10 years.

Their measure argues that film and television studios provide a service, not a product, and therefore the WTO ruling should not apply to Hollywood at all.

Studios and their advocates have run into some resistance from Senate Finance Committee leaders who worry that that interpretation will run afoul of the WTO, but aides to Boxer and Feinstein note that two former U.S. trade representatives have given the measure the thumbs-up.

``The film industry was not part of the problem that led to the WTO provision,'' said Feinstein spokesman Howard Gantman.

Not everyone, however, is supportive of the entertainment industry aid.

A dissenting committee report by Sen. Don Nickles, R-Okla., and John Kyle, R-Ariz., objected to allowing films to qualify for a manufacturing deduction.

``We believe that the reported bill will lead us down the slippery slope of industries pressuring Congress to expand the definition of manufacturing in the future to allow them to qualify for the deduction, regardless of whether the industry can properly be defined as a manufacturing industry,'' they wrote.

The House has not yet passed a version of the tax bill, and that bill does not include any of the breaks for Hollywood studios. Lobbyists, however, said they believe the Senate provisions will be incorporated into the House bill.

If Congress does not pass the bill by year's end, the United States faces about $4 billion in international sanctions.

Lisa Friedman, [phone]

lisa.friedman(at)langnews.com