A fiscal cliff solution, served with a side of tax breaks

McClatchy NewspapersJanuary 2, 2013 

BIZ FARM-DESIGNERS 11 HC

The U.S. didn't fall over the milk "cliff."

MARK MIRKO — Hartford Courant/MCT

— There are breaks for movie producers and racetracks, a little gift for Captain Morgan rum and tax credits galore for makers of two- or three-wheeled plug-in electric vehicles, Indian coal facilities and companies that do business in American Samoa.

The 157-page bill passed by Congress in a rare New Year’s Day session to temporarily avoid the nation’s fiscal crisis is chockfull of goodies for special interest groups.

“They are the cockroaches of Washington policy,” said Steve Ellis, vice president of Taxpayers for Common Sense, a nonpartisan budget watchdog group. “They always survive. You cannot kill them.”

The bill, officially called the American Taxpayer Relief Act of 2012, raises taxes on the wealthy, provides benefits for 2 million unemployed Americans and postpones $109 billion in deep spending cuts.

But when Congress does business, the solutions are not always simple. Legislation is often filled with seemingly unrelated proposals that most Americans know little about.

That’s why the bill to avert the so-called fiscal cliff includes dozens and dozens of other items – extensions of existing tax credits and benefits, handouts to companies and last-minute deals – pushed by lobbyists in the nation’s capital and constituents back home. Some tax breaks had been killed a year or more ago, only to be resurrected in this bill.

The legislation extends certain farm subsidy programs for one year, a change that will prevent milk prices from doubling as part of what had been dubbed the “dairy cliff.” It also allows the Internal Revenue Service to share information with private prisons to combat fraud in tax returns.

Homeowners will be able to avoid paying taxes on the portion of their mortgage debt that was forgiven by a lender during a distress sale or a loan modification, important for states like Florida and California as they struggle to climb out of the housing crisis.

The bill even alters definitions in federal law, helping industries reinvent themselves. “Cellulosic biofuel” has turned into “second generation biofuel.”

For months, lawmakers on the campaign trail spoke about eliminating tax breaks and simplifying the tax code. But, watchdog groups say, they did the opposite, and cost taxpayers a whopping $30 billion.

"It flies in the face of tax reform,” said Robert Bixby, executive director of the Concord Coalition, a nonpartisan budget watchdog group. “Everyone is talking about closing loopholes, and they validate $30 billion of loopholes. It doesn’t bode well for tax reform.”

Tax credits benefit businesses that train mine rescue teams, help develop the New York Liberty Zone – an area around the site of the World Trade Center – maintain railroads and build and own racetracks. A dozen or so extend credits for green energy – wind farms, plug-in electric vehicles, energy-efficient appliances, and biodiesel and renewable diesel operations.

A dollar-per-gallon tax credit extension for biodiesel was implemented in 2005 but lapsed twice. Now it’s back, prompting praise from the American Soybean Association, which had lobbied for the credit. The group’s president, Danny Murphy, called it a “significant win for the burgeoning biodiesel industry, an important market for soybean growers.”

The bill preserves a $430 million tax incentive for Hollywood to encourage filming of movies and television shows in the United States. It’s worth up to $15 million in tax breaks to producers.

The Motion Picture Association of America, the industry’s lobbying group, defended the break, saying the movie and television industry is responsible for 2.1 million jobs and $137 billion in wages. Spokeswoman Kate Bedingfield said the break is needed to defend against other nations, like neighboring Canada, which offer generous tax incentives and other financial assistance to woo American filmmakers.

“The American film industry is an incredible contributor to the American economy,” Bedingfield said.

The bill continues an excise tax of $13.50 per gallon paid by consumers who buy rum from Puerto Rico and the U.S. Virgin Islands.

The money is to be used by the territories to spur economic development, but taxpayer groups say liquor conglomerates actually benefit because the territorial governments can provide as much as 35 percent of the revenue to distillers to help market rum in the U.S. Alcohol conglomerate Diageo recently struck a deal with the U.S. Virgin Islands government to cover bonds to build a Captain Morgan distillery on the islands, according to Taxpayers for Common Sense.

The Distilled Spirits Association of the United States declined to comment. But Rep. Donna M.C. Christensen, the non-voting delegate from the Virgin Islands, has long defended the practice, testifying before Congress that “it is not a tax credit or tax benefit for individuals or businesses.”

Instead of battling over which industries are in and which are out, lawmakers tend to extend credits pretty widely.

“It’s more of the same,” said Roberton Williams, a senior fellow at the nonpartisan Tax Policy Center. “It’s one more year of kicking the can down the road.”

Kevin G. Hall of the Washington Bureau contributed.

Email: akumar@mcclatchydc.com, wdouglas@mcclatchydc.com; Twitter: @anitakumar01, @williamgdouglas

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