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August 5, 2012

Senators nibble at tax breaks, but special interests bite back

NASCAR keeps its write-off, a rum-tax rebate remains, but electric golf carts lose their tax credit.

By LORI MONTGOMERY The Washington Post

WASHINGTON - It was supposed to be a first step toward tax reform. But as lawmakers tackled a list of 75 special-interest tax breaks, the special interests repeatedly won.

An accelerated write-off for owners of NASCAR tracks: That has to stay.

An economic development credit for a StarKist tuna cannery in American Samoa: That stays, too.

A rum-tax rebate for Puerto Rico and the U.S. Virgin Islands worth millions of dollars a year to one of the world's largest distillers: Check.

A $2,500 credit for electric motorcycles and other low-speed vehicles: That stays. But "in the spirit of tax reform," its sponsor, Sen. Ron Wyden, D-Ore., said he agreed that electric golf carts would no longer be eligible.

When the dust settled Thursday, members of the Senate Finance Committee congratulated themselves for agreeing to jettison 20 of the perks, including a $5,000 credit for first-time home buyers in the District of Columbia and a cash-incentive program for wind-energy projects that has been derided as benefiting foreign companies.

But their failure to weed out dozens more pet provisions clouded prospects for a far-reaching simplification of the nation's tax laws advocated by President Obama, GOP challenger Mitt Romney and congressional leaders in both parties.

"The opening salvo of tax reform was little more than whimper," said Steve Ellis, vice president of the nonprofit watchdog group Taxpayers for Common Sense. "If this is as bold as they're going to go, it doesn't bode very well for fundamental reform."

Rather than criticize themselves for not hacking through the layers of loopholes and tax favors, committee leaders noted that they had, for the first time in memory, refused to automatically renew them all. Thursday's 19-5 vote not only reversed a decades-long trend, they said, it demonstrated a rare ability to work across party lines at a time when a protracted stalemate over taxes and spending threatens to throw the nation back into recession early next year.

"By doing this, we've come a long way toward functionality," said Sen. Orrin G. Hatch (Utah), the panel's senior Republican. "This is a major achievement. It certainly is not tax reform. But ... it's a step in the right direction."

"I'm proud of what we've done as a committee," added Finance Committee Chairman Max Baucus, D-Mont. It's "more than baby steps. This is not the first steps the baby's taking. We're walking."

With Congress headed home for an August recess, the full Senate cannot vote on the measure until at least September. If approved, it would face an uncertain fate in the House, where the Ways and Means Committee is reviewing the temporary tax breaks collectively known as "tax extenders" because Congress has not made them permanent.

The provisions are instead regularly renewed for a year or two "in the dark of night," as Hatch put it, often as an amendment to must-pass bills. In 2008, for example, the Senate tacked them onto the Troubled Assets Relief Program bank-bailout legislation.

The extenders include many popular provisions, such as a credit for domestic research and development and a deduction for college tuition. The package approved Thursday also would protect millions of middle-class families from the alternative minimum tax through 2013, by far the most costly provision.

All told, the measure would add $143 billion to next year's budget deficit, according to official estimates, with about $40 billion going to the special-interest breaks. Over 10 years, the cost would swell to $205 billion.

In a tentative deal reached late Tuesday, Baucus and Hatch agreed to wipe out more of the loopholes. But lawmakers in both parties appealed, and Baucus presented a rewrite Thursday morning that brought several back to life.

(Continued on page 2)

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