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    « The Boat People: Australia's Struggle To Solve A Global & Ancient Problem | Main | Japan To Slash Corporate Tax Rate: Desperate Measures For Desperate Times »
    Wednesday
    Dec152010

    Obama's $858 Billion Tax Cut Bill : $55 Billion Plus For Special Interests

    Image Source:WikiCommons

    Today the US Senate passed the President's new $858 billion tax cut bill, which extends the Bush era tax cuts for another two years; while extending the unemployment benefits for another thirteen months. The Senate voted 81 to 19 in favor of the tax bill; finally fulfilling our President's long cherished fantasy of 'bipartisanship'. (He can take a breather now.)

    While our politicians (from both sides of the aisle) are busy patting themselves on their backs for 'successfully working together', in the interest of the common man (that's you and me); it's important to know that buried inside this massive $858 billion tax bill are more than $55 billion earmarked for special interests. (BTW WaPo has published a very good article on this.)

    Here're some of the interesting provisions under the new tax bill meant to benefit different businesses and special interests: 

    1) "Temporary increase in limit on cover over of rum excise taxes to Puerto Rico and the Virgin Islands.": In plain English, it means that the rum producers in Puerto Rico (PR) and the US Virgin Island (USVI) get the excise tax collected on the sale of rum produced in these two territories, refunded back to them from the federal government. Federal law charges excise tax on all liquor produced and sold in the US, but PR and the USVI get their excise tax refunded by Washington. This has apparently been going on for years and the new tax bill essentially continues the practice, at an estimated cost of $235 million to the taxpayers in 2011. The goal is supposedly to re-invest the money in the rum industry so as to boost the industry. However there is no law that mandates it; as such it's entirely left up to the local governments what they want to do with this refund. 

    2) R & D tax credit for technology and manufacturing companies has been extended for another two years at the cost of $6 billion. This tax credit rewards companies for conducting R & D within the US, with the hope that such investments would make the US more competitive in the global market. This practice is not unique to the US as many other governments do the same thing. US is the leader in global R & D spending. It accounted for 71% of total R & D spending worldwide ($330 billion) in year 2009. US gives a 7% credit to companies for every dollar spent on R & D in the US, but quite a few other nations (which spend actually far less on R & D in general), give much higher tax credit to their companies. There had been strong lobbying going on for months for the extension of this particular tax credit, with many asking for a permanent tax credit for R & D, instead of short term, temporary (two-year) extension.

    The US Capitol, Image Source:Wiki

    3) Perhaps the most controversial is the extension of the ethanol tax credit for yet another year at the cost of $6 billion. This - 45 cent per gallon tax credit - is a gift to the Ethanol industry and the corn lobby from the Congress and the President, despite criticism of this subsidy as 'wasteful' by many. Almost 40% of corn produced in the US is used for production of ethanol.

    In a letter published December 10th, the DC based watchdog - Taxpayers for Common Sense - says: "The Volumetric Ethanol Excise Tax Credit (VEETC) is a $0.45 tax credit given for every gallon of corn ethanol and gasoline blended together, and it is set to expire at the end of the year. If renewed for a year, it would cost taxpayers $6 billion, accomplishing nothing more than lining industry’s pockets and snatching defeat from the jaws of taxpayer victory. We urge you to oppose the extension of VEETC at any level. Despite the high price tag, VEETC will do nothing to create green jobs or reduce oil dependence."

    Findings of a report published by the Government Accountability Office (GAO) in 2009 argue against extending the ethanol subsidies as well. The GAO report said: "Unless crude oil prices rise significantly, the VEETC is not expected to stimulate ethanol consumption beyond the level the RFS (renewable fuel standard) specifies this year. The VEETC also may no longer be needed to stimulate conventional corn ethanol production because the domestic industry has matured, its processing is well understood, and its capacity is already near the effective RFS limit of 15 billion gallons per year for conventional ethanol."

    4) Special accounting privileges for 'motorsports entertainment complexes' (e.g. NASCAR), which allows them a seven-year "cost recovery period". This provision supposedly makes room for a quicker depreciation on new constructions and improvements, and thus allows owners of speedways to write off their investments sooner than others - at the cost of $40 million to the US taxpayers. 

    The WaPo article (linked above) explains: "The motor-sports provision stems from an ongoing dispute between racetrack owners and the Internal Revenue Service, which concluded that racing facilities should be subject to longer depreciation schedules - thus decreasing tax benefits for owners. The motor-sports industry, including the popular NASCAR series, argues that a shorter, seven-year depreciation schedule used by amusement parks and similar facilities should apply instead. The main beneficiaries of the provision would be large track owners such as International Speedway Corp. and Speedway Motorsports. But other racing organizations also support the change."

    5) While we're doling out money like candy, how can we forget Hollywood? After all the bigwigs of the movie industry make such generous campaign contributions to American politicians, that they got to have something back for their investment - and they sure did. Their multi-million $$ tax-breaks were extended for another two years by today's bill. If at least 75% of the total compensation for film or TV production is within US, the TV and film producers can write off up to $15 million in taxes and up to $20 million if the costs are incurred in 'economically depressed areas'. 

    Now the bill goes to the House later this week (possibly tomorrow) for it's seal of approval. There is not even a remote chance that any of the above provisions will be deleted. The best we can hope for at this point is that the House doesn't add to this list.

    ~ Gauri

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