Wednesday, January 2, 2013

Eight Corporate Subsidies in the Fiscal Cliff Bill

Matt Stoller at NC points out the ubiquitous presence of corporate lobbying when it comes to tax policy:
Throughout the months of November and December, a steady stream of corporate CEOs flowed in and out of the White House to discuss the impending fiscal cliff. Many of them, such as Lloyd Blankfein of Goldman Sachs, would then publicly come out and talk about how modest increases of tax rates on the wealthy were reasonable in order to deal with the deficit problem. What wasn't mentioned is what these leaders wanted, which is what's known as "tax extenders", or roughly $205B of tax breaks for corporations.  ... few political operatives have bothered to pay attention to this part of the bill. But it is critical to understanding what is going on.
...Most tax credits drop straight to the bottom line – it's why companies like Enron considered its tax compliance section a "profit center". A few hundred billion dollars of tax expenditures is a major carrot to offer. Surely, a modest hike in income taxes for people who make more than $400k in income and stupid enough not to take that money in capital gain would be worth trading off for the few hundred billion dollars in corporate pork. This is what the fiscal cliff is about – who gets the money. And by leaving out the corporate sector, nearly anyone who talks about this debate is leaving out a key negotiating partner.
Stoller points out "eight corporate subsidies in the fiscal cliff bill that you haven't heard of":

  • NASCAR - welfare for racetrack builders, about $43M per year
  • Railroads - welfare for track maintenance, 165M/yr.   Stoller says "It's unclear why private businesses should be compensated for their costs of doing business." 
  • Film producers - we're used to that brand of welfare here, aren't we.  Stoller calls this provision "a relatively straightforward subsidy to Hollywood studios."
  • mining companies – mine safety welfare.  Stoller:  "Taxpayers shouldn't have to bribe mining companies to not kill their workers."  
  • Goldman Sachs –  welfare for HQ building, via tax exempt financing in the New York Liberty Zone, which amounted to "little more than a subsidy for fancy Manhattan apartments and office towers for Goldman Sachs and Bank of America Corp." The whole free zone thing is ludicrous in general but it seems particularly preposterous in Manhattan.
  • Offshore financing – a subpart F giveaway, Stoller says it "basically allows American corporations such as banks and manufactures to engage in certain lending practices and not pay taxes on income earned from it." No wonder then it gets support from the likes of GE, my favorite tax dodger.  I like how Stoller points out that this particular form of welfare has its own trade association, ad reminds us yet again that lobbying pays: "Steve Elmendorf, super-lobbyist, has been paid $80,000 in 2012 alone to lobby on the "Active Financing Working Group.""
  • Foreign subsidiaries -another subpart F rule, this time essentially ignoring payments between related CFCs, which Stoller explains "allows US multinationals to not pay taxes on income earned by companies they own abroad." 
  • R&D & capital expenditures – both are well subsidised in the US, Stoller calls them "well-known corporate boondoggles." There are of course arguments for both, but it does seem rather silly to pretend that businesses must capitalize things and then keep giving them accelerated dereciation schedules that basically allow them to expense everything.
Stoller links to a number of his sources including a JCT repot that scored these expenditures.  There are no doubt many more expenditures in the bill.  Most, and perhaps all, could have been safely disposed of without bringing on the austerity bomb that we are meant to fear had we gone over the cliff. But that is tax politics in a system driven and dominated by lobbying.

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