December 10, 2019

Dispute Over Value-Added Tax on Movie Tickets in China Appears Near End

LOS ANGELES — A heated Chinese business and political dispute that has stopped about $200 million in box-office payments to Hollywood studios appears near a resolution, just as outlines of the fight were first emerging in public.

The dispute, which has persisted for months, centers on the imposition of a 2 percent value-added tax on movie ticket sales in China. According to people in the American film industry briefed on the problem, the China Film Group — a powerful Beijing company that oversees film imports — argued to its own government that movie tickets should be exempt from the new tax, which would sharply reduce its profits ahead of a planned initial public offering.

While working on a resolution, the China Film Group has held up payments to American studios for the distribution in China of blockbusters like “Life of Pi,” “Skyfall,” “G.I. Joe: Retaliation,” “Oz the Great and Powerful” and others, according to these people who spoke on condition of anonymity because the process was not yet completed.

Precisely how the resolution might work remained unclear. But the full payments stipulated under a 2012 film trade agreement between the Chinese and United States governments are expected to resume shortly, said those people, some of whom are involved in the studios’ Chinese business dealings.

The payments are owed to virtually all the major American studios and several smaller distributors, none of which have publicly discussed the problem. The flow of cash stopped last year, shortly after the film trade agreement was negotiated in February by Vice President Joseph R. Biden Jr. and the Chinese vice president Xi Jingping, who has since become China’s president.

Though apparently pointed toward resolution, the halted payments underscored once again the challenges for Hollywood in dealing with China, where government censorship, a distinctive business culture, and a protective stance toward domestic films have made business uncertain, even as Chinese moviegoers flock to an expanding number of theaters.

The agreement forged last year was intended to pave a smoother, and more lucrative, path for American studios to release movies there, but Hollywood has continued to encounter problems that include censorship, piracy, release dates and the current anxiety over payments.

The China Film Group had privately assured American studios that it would not try to subtract the new 2 percent tax from their share of the box office, which is pegged at 25 percent of ticket sales under a memorandum of understanding that accompanied the trade agreement, according to the people who were briefed on the conflict.

Before last year’s agreement, studios received a 13 to 17 percent share of net box-office receipts in China, which were calculated after deducting fees and taxes totaling about 8 percent. The new formula, which calculates the American share without first subtracting the fees and taxes, resulted in a sharp reduction of profit margins at the China Film Group, which remains the clearinghouse for nearly all foreign films imported under an annual quota of 34 movies.

According to the people briefed on the tax dispute, the agreement took a large bite out of the state-controlled film group’s profitability. By one estimate, an American movie that took in $100 million at the box office in China would pay a studio in the United States $25 million, while leaving only about $14.5 million for the China Film Group after payments to Chinese theater owners

The value-added tax, which was imposed broadly in China earlier this month after some regional experiments, would further reduce the film group’s share, just as it plans an initial offer of its stock.

The people who were briefed on the resumption of American payments said they did not know whether the China Film Group was still expected to pay all or some of the tax. Some in the Chinese government, they said, appeared receptive to an argument that films should be exempted from the tax because of their cultural value.

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Campaign to Cut Deficit Has Deep Business

Mr. McCrery did not mention his day job: a lobbyist with Capitol Counsel L.L.C. His clients have included the Alliance for Savings and Investment, a group of large companies pushing to maintain low tax rates on dividend income, and the Win America Campaign, a coalition of multinational corporations that lobbied for a one-time “repatriation holiday” allowing them to move offshore profits back home without paying taxes.

In Washington’s running battles over taxes and spending, Mr. McCrery and his colleagues at Fix the Debt have lent a public-spirited, elder-statesman sheen to the cause of deficit reduction. Leading up to the fiscal negotiations, they set up grass-roots chapters around the country, met with President Obama and his aides, and hosted private breakfasts for lawmakers on Capitol Hill. In recent days, Fix the Debt has redoubled its efforts, starting a new national advertising campaign and calling on Mr. Obama and Congress to revise the tax code and reduce long-term spending on entitlement programs.

But in the weeks ahead, many of the campaign’s members will be juggling their private interests with their public goals: they are also lobbyists, board members or executives for corporations that have worked aggressively to shape the contours of federal spending and taxes, including many of the tax breaks that would be at the heart of any broad overhaul. While Fix the Debt criticized the recent fiscal deal between Mr. Obama and lawmakers, saying it did not do enough to cut spending or close tax loopholes, companies and industries linked to the organization emerged with significant victories on taxes and other policies.

“Some of these folks who are trying to be part of the solution have also been part of the problem,” said Jared Bernstein, a senior fellow at the Center on Budget and Policy Priorities, a liberal-leaning advocacy group, and a former economic adviser to Vice President Joseph R. Biden Jr. “They’ve often fought hard against the kind of balance that we need on the revenue side. Many of the people we’re talking about are associated with policies that would make it a lot harder to fix the debt.”

Sam Nunn, a former Democratic senator from Georgia who is a member of Fix the Debt’s steering committee, received more than $300,000 in compensation in 2011 as a board member of General Electric. The company is among the most aggressive in the country at minimizing its tax obligations. Mr. McCrery, the Louisiana Republican, is also among G.E.’s lobbyists, according to the most recent federal disclosures, monitoring federal budget negotiations for the company.

Other board members and steering committee members have deep ties to the financial industry, including private equity, whose executives have aggressively fought efforts to alter a tax provision, known as the carried interest exception, that significantly reduces their personal income taxes.

Erskine B. Bowles, a co-founder of Fix the Debt, was paid $345,000 in stock and cash in 2011 as a board member at Morgan Stanley, while Judd Gregg, a former Republican senator from New Hampshire and a co-chairman of Fix the Debt, is a paid adviser to Goldman Sachs. Both companies have engaged in lobbying on international tax rules.

Mr. Gregg also sits on the boards of Honeywell and IntercontinentalExchange, a company that has warned investors that a tax on financial transactions would lower trading volume and curtail its profits. The two companies paid Mr. Gregg almost $750,000 in cash and stock in 2011.

In all, close to half of the members of Fix the Debt’s board and steering committee have ties to companies that have engaged in lobbying on taxes and spending, often to preserve tax breaks and other special treatment.

Fix the Debt does not endorse specific tax proposals. Instead, it advocates broad principles for debt reduction, including “comprehensive and pro-growth tax reform, which broadens the base, lowers rates, raises revenues and reduces the deficit.” A spokesman, Jon Romano, said that the executives involved with the campaign were committed to tax reform, even if it closed loopholes that benefited their companies.

“All the people involved in this campaign have said from the beginning that everything has to be on the table,” Mr. Romano said. “Our C.E.O.’s, our state chapters, our small-business leaders — they are all willing to give something up for the sake of the country.”

Those involved with the campaign say they have tried to separate their advocacy for Fix the Debt and their private work for clients. Vic Fazio, a former Democratic congressman from California who is on the campaign’s steering committee, is a lobbyist at Akin Gump, a firm whose clients include KKR, a leading private equity shop, and the Private Equity Growth Capital Council, an industry trade group.

Nelson D. Schwartz contributed reporting.

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Richard Ben Cramer, Writer of Big Ambitions, Dies at 62

A labor of six years and 1,047 pages, the book, by the Pulitzer Prize-winning journalist Richard Ben Cramer, appeared in 1992 to mixed reviews. Subtitled “The Way to the White House,” it was an intimate, deeply reported chronicle of the 1988 presidential race.

Mr. Cramer, who died on Monday at 62 from complications of lung cancer, never wrote another book about domestic politics. He later turned to a different foundation stone of American identity — baseball — writing a biography of Joe DiMaggio. Afterward, he wrote a study of Mideast politics.

But the fate of “What It Takes” between 1992 and the dawn of the 21st century is telling, for it reveals the sea change that has swept over American politics, and American political coverage, in the interim.

In a 2007 essay about “What It Takes” in The New York Times Book Review, Matt Bai, a writer on national politics for The Times, called it “not just the most ambitious and riveting in a line of great American campaign books, but perhaps the last of them, too.”

Where previous election histories — notably Theodore H. White’s “Making of the President” series — had focused on the process of campaigns, Mr. Cramer trained a magnifying glass on the psyches of the candidates themselves.

“What It Takes” is a hexagonal portrait of the six men at the center of the 1988 race: the Democrats Joseph R. Biden Jr., Michael S. Dukakis, Richard A. Gephardt and Gary Hart, and the Republicans George Bush and Bob Dole.

Through the thousands of hours Mr. Cramer spent with the candidates on airplanes and at whistle stops — as well as countless more hours with their families, friends, former schoolteachers and myriad others — he sought to answer two questions: What kind of people seek the White House, and what does the quest ultimately do to them?

Mr. Cramer’s book is at bottom a psychological study of towering ambition and the toll of public life. Where it succeeded most notably, in the view of many critics, was in its depiction of the candidates not as mere archetypes but as flesh-and-blood human beings.

In a statement on Tuesday, Vice President Biden said: “It is a powerful thing to read a book someone has written about you, and to find both the observations and criticisms so sharp and insightful that you learn something new and meaningful about yourself. That was my experience with Richard.”

What became clear over time was that the kind of closely observed, densely textured profiles around which Mr. Cramer’s book was built would very likely not be seen again. The leisurely access he was afforded by all six campaigns resulted in a group portrait that in today’s climate of unremitting, Internet-driven news cycles and minutely stage-managed news conferences reads like an anthropological study of a fascinating tribe since walled off to outsiders.

Richard Ben Cramer was born in Rochester on June 12, 1950. He earned a bachelor’s degree from Johns Hopkins University and a master’s in journalism from Columbia before beginning his career as a reporter on The Baltimore Sun in 1973.

Mr. Cramer was by all accounts larger than life. At The Sun, he ritually began his day with five cups of coffee, purchased en masse from the company cafeteria, lined up on his desk and drunk in quick caffeinated succession.

Later, as a foreign correspondent for The Philadelphia Inquirer, he once returned to the newsroom from a trip to the Middle East with a goat and a camel in tow, according to a 1992 profile in The Washington Post. Mr. Cramer won the 1979 Pulitzer Prize for international reporting for his dispatches from the region.

In the 1980s, after leaving The Inquirer, Mr. Cramer wrote for Sports Illustrated, Rolling Stone and Esquire. In 1986, for Esquire, he wrote a memorable article about the Red Sox slugger Ted Williams that, as “What It Takes” would do, sought to demythologize an American institution. The article led Mr. Cramer to write two books on Williams.

A version of this obituary appeared in Tuesday’s late editions. Michael Schwirtz contributed reporting.

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Obama Says Republicans Given ‘Fair Deal’

“When you think about what we’ve gone through over the last couple months — a devastating hurricane, and now one of the worst tragedies in our memory — the country deserves us to be willing to compromise on behalf of the greater good,” Mr. Obama said before television cameras and reporters during a noontime appearance at the White House.

The president, with Vice President Joseph R. Biden Jr., was there to announce that he would propose gun control measures in January. But when he invited questions, the first several were on the state of his troubled talks on a year-end budget deal with Speaker John A. Boehner, Republican of Ohio.

“Frankly, up until a couple days ago if you looked at it, the Republicans in the House and Speaker Boehner were in a position to say, ‘We’ve gotten a fair deal.’ The fact that they haven’t taken it yet is puzzling,” the president said.

While Republicans are resisting further tax increase concessions by Mr. Boehner — the speaker has now proposed a scaled-back “Plan B” that would allow tax rates to rise only on income of $1 million and above, which the president threatened to veto should it reach his desk — Mr. Obama also has had to answer questions in his party about his own tentative compromises.

In particular, some liberals say that he has broken a campaign pledge to keep Social Security out of the deficit-reduction talks, by giving tentative support to a Republican demand that the government adopt a new inflation formula for calculating cost-of-living adjustments. That would slightly reduce the growth in Social Security benefits from what they would be under the current inflation index.

Recalling his campaign, Mr. Obama countered, “What I said was that the ultimate package would involve a balance of spending cuts and tax increases. That’s exactly what I have put forward. What I have said is, in order to arrive at a compromise I am prepared to do some very tough things, some things that some Democrats don’t want to see — and probably there are a few Republicans who don’t want to see them, either.”

After Dec. 31, the Bush-era tax cuts will expire and spending cuts will be made in domestic and military programs if the two sides can’t reach a deal. Both parties are trying to avoid that outcome, but they disagree on the income level at which taxes should go up, and how deeply to cut future Medicare spending.

Mr. Boehner, having conceded support for raising the top income tax rate, is demanding that a 39.6 percent rate — up from 35 percent — apply only to income of $1 million and above. Mr. Obama, who has long proposed a $250,000 threshold for couples and $200,000 for individuals, has moved that line to $400,000 in recent negotiations but refuses to go to $1 million.

Referring to Mr. Boehner, he said, “If you’re making $900,000, somehow he thinks that you can’t afford to pay a little more in taxes.”

“The principle that rates are going to go up, he’s conceded,” the president said. “I’ve said I’m willing to make some cuts. What separates us is probably a few hundred billion dollars. The idea that we would put our economy at risk because he can’t bridge that gap doesn’t make a lot of sense.”

The president said he would continue to have discussions with the speaker and others. But he put the ball back in the Republicans’ court and potentially set them up for blame if the two sides fail to reach an agreement: “Right now their job is to make sure middle-class taxes do not go up and that we have a balanced, responsible package of deficit reduction.”

Separately, Mr. Boehner and House leaders were preparing for a House vote as early as Thursday on the speaker’s scaled-back plan.

In trying to line up votes, Republicans circulated word that Grover Norquist, the longtime anti-tax advocate, had blessed Mr. Boehner’s plan as compliant with his “taxpayer protection pledge.” Since most Republicans have signed the pledge, Mr. Norquist effectively has locked in their votes against any tax increases.

But Mr. Norquist seemed to bend his longstanding, absolutist principles to issue the endorsement, perhaps to maintain his relevance in tax debates. Even senior Republicans have said publicly that his pledge is a deterrent to resolving the nation’s fiscal problems, given increasing bipartisan acknowledgment that higher tax revenues are required along with spending cuts to control the growth of federal debt in an aging population.

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States Want to Have Say During Talks Over Budget

They have been down this road before — Congress has already missed several self-imposed deadlines to cut the deficit — but many say they fear that this time, the talks in Washington to avert the so-called fiscal cliff will actually lead to deep cuts.

So they want a say in the negotiations.

“The main message is that it’s important to remember that, on a lot of areas of governance, we’re partners — and that these issues can’t be solved simply by cost-shifting to the states, because the states aren’t really in a position to do all that,” said Gov. Jack Markell of Delaware, chairman of the National Governors Association. “We just want to make sure that we have a voice as these decisions are being made.”

But there is a long history of the federal government’s giving short shrift to the needs of states and cities — by making cuts in federal aid that forced service cuts or tax increases at the local level, or by passing laws requiring localities to take expensive actions without giving them the money to do so.

So in recent days, more than a dozen mayors with the United States Conference of Mayors have gone to Washington to lobby lawmakers. And last Monday, Mr. Markell, a Democrat, joined several governors from both parties to discuss the issue on a conference call with Vice President Joseph R. Biden Jr.

The states, whose tax collections are still below the peak levels they reached in 2008, are in something of an unusual situation. That is because the automatic tax increases and spending cuts that are scheduled to begin in January, called “the fiscal cliff” by Ben S. Bernanke, the Federal Reserve chairman, are actually better for them in some respects than many of the alternate proposals in Washington.

Half of the cuts scheduled to take effect at the beginning of next year would be to military spending, which would affect states only indirectly. The scheduled cuts to domestic programs would leave Medicaid, the single biggest source of federal aid to states, untouched. And the planned federal tax increases would increase revenues in states whose tax codes are closely linked to the federal code.

But governors said that no one was rooting for President Obama and Republicans in Congress to fail to reach a financial accord, in part because they fear that the resulting combination of spending cuts and tax increases could prompt another recession, which their states can ill afford.

Gov. Rick Snyder of Michigan, a Republican, noted that the spending cuts and tax increases were intended to be so undesirable that they would spur opposing sides in Washington to overcome their antagonism and strike a deal on taxes and spending just to avoid them.

The plan “was designed to be a terrible answer,” Mr. Snyder said, “and I think they did a fairly effective job of doing that.”

Pat McCrory, the Republican governor-elect of North Carolina and former mayor of Charlotte, said state and local officials needed a greater voice in Washington.

“I don’t think the debate should be just between the White House and Capitol Hill, but the state and local government should be at the table,” Mr. McCrory said. “Because I assume some of their answers are going to be pass-throughs to the states or to cities, as I saw as mayor in the past.”

The automatic cuts would hurt states in several areas. A recent analysis by the Pew Center on the States found that roughly 18 percent of the federal grant dollars flowing to the states would be subject to across-the-board cuts, including money for education, public housing and nutrition programs for low-income women and children.

But some governors fear that any “grand bargain” struck by Mr. Obama and Congress could lead to even deeper cuts to states, and they worry that it could include tax provisions that they believe would be harmful, like ending the tax-exempt status of municipal bonds that makes the bonds more attractive to investors.

But the needs of states and cities have often been an afterthought when Washington has talked about curbing spending.

Alice M. Rivlin, a former director of the Office of Management and Budget who served on two recent high-profile federal commissions — the National Commission on Fiscal Responsibility and Reform, better known as the Simpson-Bowles Commission, and the Bipartisan Policy Center’s Debt Reduction Task Force — acknowledged as much in an appearance this summer.

“I’ve served on not one but two commissions on the federal deficit,” Ms. Rivlin said when another group she belongs to, the State Budget Crisis Task Force, released a report warning of the fiscal problems facing states. “And I can attest that although we were certainly aware that the proposals we made would impact state and local government, we did not do a serious analysis of what would happen.”

Gov. John R. Kasich of Ohio, a Republican, has been on both sides of the federal-state divide: trying to cut the federal budget as a chairman of the House Budget Committee, and now seeking to preserve services, especially for the poor, as a governor.

“I’m just saying that if you’re going to affect us, you’d better realize there’s a bottom line that affects flesh and blood and real people,” he said this month at a meeting of the Republican Governors Association. “And you can easily throw every one of these budgets into the red by just trying to get a nice number.”

The absence of a formal dialogue between the federal government and the states was cited as a danger by the State Budget Crisis Task Force, a private group led by Richard Ravitch, a former lieutenant governor of New York, and Paul A. Volcker, a former chairman of the Federal Reserve.

“There are no standing structures and procedures within the federal government for analyzing the impacts on states and localities of reduced federal spending or federal tax changes, and there is little dialogue about these issues between the federal government and state and local governments,” its report said last summer. It recommended creating something like the Advisory Commission on Intergovernmental Relations, which lasted from 1959 to 1996.

John Kincaid, a former executive director of the advisory commission, which included federal and state officials, said it grew less effective as political polarization increased.

“No matter what happens in Washington, it’s going to hit state and local governments very hard,” said Mr. Kincaid, who is now a professor of government and public service at Lafayette College in Easton, Pa. “I think, by and large, states have become accustomed to this pattern of decision-making, so they’re going to brace themselves for whatever comes. State and local officials will lobby very hard to get what they can out of this bargain, but they won’t be all that significant as players.”

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