WASHINGTON–Facing serious opposition from property-casualtyinsurers and other business interests, key Democratic legislatorsin Congress have backed away from an effort to take away insuranceindustry tax breaks.

At issue is language that was tacked onto a minimum wage billbarring insurers and other businesses from deducting the costs ofpunitive damage awards in civil suits and for deducting the cost ofsettlements with government agencies.

Following a decision Friday by Senate Finance Committee ChairmanMax Baucus, D-Mont., and House Ways and Means Committee ChairmanRep. Charles Rangel, D-N.Y., those provisions the industry foughtagainst have been stripped away.

Sen. Charles Grassley, R-Iowa, ranking minority member of theSenate Finance Committee, who has pushed to stamp out the industrytax breaks, said he thought the change came about because,“apparently, the [business] lobbyists' crocodile tears over thosecrackdowns were effective.”

“This package is stripped of a lot of meaningful tax relief,”the senator said.

However, final resolution of the issue is still perhaps weeksaway because at this point the tax language and minimum wageincreases are part of a bill that includes Iraq war troopwithdrawal language, which President Bush is expected to vetosometime next month.

Insurance industry representatives said they expect thepresident will eventually be given a bill that he will sign and itwill not contain the tax language they oppose.

The bill is titled H.R. 1591, U.S. Troops' Readiness, Veterans'Health, and Iraq Accountability Act of 2007.

The language agreement between Sen. Baucus and Rep. Rangelprovides $4.8 billion in tax cuts for small businesses over 10years.

Those tax cuts would mostly be offset by a series of' newInternal Revenue Service enforcement steps and higher penalties forerroneous returns. Approximately half of the tax relief would go toextend tax breaks for businesses hiring people on welfare and otherdifficult-to-hire workers.

The provisions dealing with the insurance industry were notincluded in the House version of the minimum wage increase bill,which was passed in January.

But they were included in a comprehensive tax package passed bythe Senate in its version of legislation hiking the minimum wage inearly February. The House responded by passing a smaller taxpackage later in February, and the two chambers have been wranglingover the size of the package ever since.

The House raised the stakes when it included its smaller versionof tax hikes and minimum wage increases in legislation demanded byPresident Bush appropriating supplement funds for the Iraq war.

The Property Casualty Insurers Association of America (PCI) wasamong the industry groups reacting favorably to the decision by thetwo committee chairmen.

Cliston Brown, PCI director, federal public affairs, saidyesterday, “Taxing punitive damages, which are casualty losses,essentially amounts to double taxation, because casualty losses aregenerally deductible.”

He added, “Making punitive damages taxable would createincentives for plaintiffs' attorneys to seek them more often. Itwould also pressure defendants to settle cases they might otherwisebe able to win, because settlements would be deductible butpunitive damages would not.

“This would provide powerful leverage against a defendant beingable to exercise his constitutional right to a trial,” Mr. Brownsaid.

Several insurance industry trade groups, including the NationalAssociation of Mutual Insurance Companies, joined a coalitionformed by the U.S. Chamber of Commerce to oppose the provisionsallowing taxation of punitive damage payments in civillawsuits.

Sen. Grassley, a key supporter of the p-c insurance industryprovisions, reacted to the Democratic deal with anger.