The Wrongologist

What’s
Wrong Today:

During the
dance on the Fiscal Cliff, our friends in Congress used the Fiscal Cliff bill
to provide corporate welfare breaks to their friends. These giveaways reduce money that in another universe would accrue
to the taxpayers. You can read the full text of the cliff bill here.
The individual tax extensions are in Title II while the corporate tax breaks
are in Title III.

Most of
these tax breaks were already in effect; Congress had been working to renew them
all last year. And they are now extended again for another year (or sometimes
two), at a total cost of roughly $63
billion.

Remember that the Fiscal Cliff law hiked
the payroll tax on working Americans by $125 billion, while simultaneously donating
over $60 billion to the Corporados.

Washington
says that we are in an endgame leading to the resolution of our revenue and
spending issues. But here they are, cheerfully working to distort our markets
for years to come by making these sweetheart deals for their buddies.

Review
the laundry list of taxation transgressions:

First, the
New York Times reported on how Amgen, the world’s largest biotechnology
firm, got lawmakers to insert a paragraph into the Fiscal Cliff bill that did
not mention the company by name but strongly favored one of its drugs.

The
language in the law delays Medicare price restraints on a class of drugs that
includes Sensipar, an Amgen pill used by kidney dialysis patients. The
provision gives Amgen an additional two years to sell Sensipar without Medicare
price controls. It is projected to cost Medicare up to $500 million over that
period.

Amgen,
which has 74 lobbyists in the capital, was the only company to
argue aggressively for the delay, according to several Congressional aides of
both parties.

Amgen’s
employees and political action committee have distributed nearly $5 million in
contributions to political candidates and committees since 2007, including $67,750 to Mr. Baucus, the
Finance Committee chairman, and $59,000 to Mr. Hatch, the
committee’s ranking Republican. They gave an additional $73,000 to Mr. McConnell,
some of it at a fund-raising event for him that it helped sponsor in December while the debate
over the fiscal legislation was under way.

More than
$141,000 has also gone from Amgen employees to President Obama’s campaigns.

Here
are nine more
beneficiaries of Corporate Welfare that were rolled into the so-called Taxpayer
Relief Act:

Tax Break
#1: Tax Breaks for Offshore Loans. This provision was first created in
1997. It allows manufacturers and banks to defer taxes when they engage in
special types of financial transactions called “Active financing”. In short, it rewards firms that lend
money to foreign instead of American companies.

It
permits big banks like Morgan Stanley to avoid the 35% corporate tax rate on
interest income from money lent overseas. Multinational companies with
financing arms, such as Ford and General Electric, also benefit from this
exception to lower their tax bills.

This break
now costs $9 billion per year, while critics claim it encourages job creation overseas.

Tax Break
#2: Tax Breaks for Offshoring Patents. The fiscal-cliff deal gives big
tax breaks to American companies that sell their products through overseas
affiliates.

Called
a “pass-through” exemption, this loophole allows American companies to set up a
new corporation in a tax haven, like the Cayman Islands, and to sell that new
offshore company US patents owned by the US-based parent company. Any overseas
royalties on overseas licensing of that patent are no longer subject to US taxes.

Tax Break #3:
Condos for Capitalists. Section 328 of the bill extends tax-exempt financing
for the area around the former World Trade Center for another year. Congress
created the Liberty Bond program in March 2002 with $8 billion in tax-exempt
funds.  This tax break was supposed to
help fund reconstruction after 9/11, but a recent Bloomberg investigation
found the bonds have mostly helped finance new luxury apartments and construction
of Goldman Sachs’ new headquarters.

The
new WTC received almost $3 billion through the Liberty Bond program. Goldman
financed construction of its headquarters at 200 West St. with about $1.5
billion in Liberty Bond financing. Bank of America’s tower across from Bryant Park
was financed with $650 million in Liberty Bonds.

Tax Break #4:
Free Money to Railroads. Section 306 of the fiscal-cliff bill gives a
tax credit to railroad companies to provide maintenance on their own lines.

This
credit costs about $331 million over the next two years.

Tax Break
#5: Hooray for Hollywood. The bill renews “special expensing rules for
certain film and television” productions.

This
credit costs $430 million over the next two years.

Tax Break
#6: Tax Breaks for Hedge funds and Private Equity. The mainstream media
has criticized the favorable tax treatment, called “carried interest” that hedge
fund and PE individuals enjoyed on their profits. They continue to be taxed
relatively lightly in the new fiscal cliff legislation.

The
profits from investing other people’s money, known as carried interest, will
continue to be taxed as long-term capital gains for hedge fund and
private-equity managers, not ordinary income as it would be for you.

Tax Break
#7: Wind Power. There is a big tax credit in the bill for the wind power
industry.

The
fiscal-cliff deal gives wind producers a 2.2-cent tax credit for every kilowatt
hour they generate in their first 10 years of operation. This credit is worth about $1 million for every large wind turbine.

Tax Break
#8: Rum Tax break. Congress approved an extension of a long-standing rum subsidy that dates back to 1917.

This
gives $222 million to
Puerto Rico and the US Virgin Islands that is passed on to their
rum
distillers

Tax Break
#9 NASCAR’s racetrack owners. The NASCAR loophole, in place since 2004,
allows anyone who builds a racetrack to receive a small tax benefit through
accelerated depreciation. It was extended for another year.

This
tax break cost roughly $43 million for the past two years.

These are a few of the very long list of tax
breaks for our corporate welfare queens.

You can
review the entire list here along with the Congressional
Joint Committee on Taxation’s report on each element of the Law.

Is this
a scandal or just business as usual?

Government
works this way: There are competing issues and constituencies and lawmakers horse-trade
to get what they want. That means you also get some of what you don’t want. Corporate lobbyists capture individual
politicians with cash and other non-financial support.

Then politicians
fight like hell to give the corporations what they want.  

Politicians
accept that bad will come with the good. The problem is how they define “the
good”. There is nothing wrong with most of these projects. Who isn’t for fixing
railroad lines? Or for drinking rum?

But why should
it be with taxpayer money?

Corporate
Welfare is a cancer on our economy; we must enforce zero tolerance for corporate
loopholes in the next round of tax reform.

Even if
that means higher prices at retail or fewer jobs.