Inside the deal: 50 tax breaks

  • Associated Press
  • January 3, 2013 - 7:50 PM

WASHINGTON - Tucked into the fiscal cliff tax package approved by Congress are billions of dollars in tax breaks that should make the new year a lot happier for businesses of many stripes, including film producers, race track owners and the makers of electric motorcycles.

In all, more than 50 temporary tax breaks were renewed through 2013, saving businesses and individuals about $76 billion. Congress routinely renews the tax package, attracting intense lobbying -- and campaign donations -- from businesses and trade groups that say the tax breaks help them prosper and create jobs.

Businesses have grown used to many of the longstanding tax breaks, but they also have had to get used to the uncertainty of whether they will be renewed each year. This time around the tax breaks were allowed to expire at the end of 2011 as lawmakers struggled to reach consensus on a wide range of tax issues. The package passed by Congress this week and signed by President Obama renews the tax breaks retroactively, so taxpayers can claim them on both their 2012 and 2013 tax returns.

The biggest of the bunch, a tax credit for research and development, helps U.S. manufacturers compete against foreign competition, according to the National Association of Manufacturers.

Sen. John McCain, R-Ariz., said the package is filled with "special-interest handouts" that make it difficult for him to justify his vote in favor of it. "It's hard to think of anything that could feed the cynicism of the American people more than larding up must-pass emergency legislation with giveaways to special interests and campaign contributors," McCain said.

Lawmakers are wary of making the tax breaks permanent because of the cost, even though they inevitably renew almost all of them each year. Annual angst over whether the tax breaks will be renewed also provides incentives for businesses to lobby key lawmakers.

"All these provisions have a lobbying arm behind them, for the most part," said Mark Luscombe, principal tax analyst for CCH, a consulting firm. "If they only extend them for a year or two then the lobbyists have to keep coming back and bestowing their favors on congressmen to get the thing extended again. If they made it permanent, then the lobbyists would go away."


• Research and development: The tax credit benefits a wide range of industries, including manufacturers, pharmaceutical companies and high tech companies. Cost: $14.3 billion.

• Shield on foreign profits: An exemption that allows banks, insurance companies and other financial firms to shield foreign profits from being taxed by the United States. The tax break is important to major multinational banks and financial firms. Cost: $11.2 billion.

• Bonus depreciation: A tax break that allows profitable companies to write off large capital expenditures immediately -- rather than over time -- giving some companies huge tax shelters. The tax break, known as bonus depreciation, benefits automakers, utilities and heavy equipment makers. Cost: $5 billion.

• Renewable energy: A tax credit for the production of wind, solar and other renewable energy. But the tax credit isn't just for renewable energy sources like wind. There's also a provision, section 406, to continue subsidizing coal produced on Indian lands at about $2 per ton at a cost of about $1 million. Cost: $12.2 billion.

• Cheaper office space for Goldman Sachs? It's certainly not called this. Section 328 of the bill extends tax-exempt financing for the "Liberty Zone," the area around the former World Trade Center, for another year. As Matt Stoller of the at the Roosevelt Institute points out, this tax provision was supposed to help fund reconstruction after 9/11. Yet a recent Bloomberg investigation revealed that the bonds have mostly helped finance new luxury apartments, not to mention the construction of Goldman Sachs' new headquarters. Developers say the bonds were necessary to revitalize downtown Manhattan, but there's a fierce debate over how they've been used.

• For restaurants and retailers: A provision that allows restaurants and retail stores to more quickly write off the cost of improvements. Cost: $3.7 billion.

• Rum rebates: Increased tax rebates to Puerto Rico and the Virgin Islands from a tax on rum imported into the United States. The United States imposes a $13.50 per proof-gallon tax on imported rum, and sends most of the proceeds to the two U.S. territories, which use the revenue to support their rum industries. Cost: $222 million.

• Race tracks: The so-called NASCAR loophole allows motorsport race tracks to more quickly write off improvement costs. Supporters claim the break is necessary so that NASCAR can compete on a level playing field with other theme parks. Cost: $78 million.

• Railroad tracks: A 50 percent tax credit for expenses related to railroad track maintenance through 2013. Cost $331 million.

• Corporate donations: Enhanced deductions for companies that donate food to the needy, books to public schools or computers to public libraries. Cost: $314 million.

• Hollywood: Studios can deduct up to $15 million of their costs if more than three-fourths of the production takes place in the United States. (They can get up to $20 million in deductions if they produce the film in a low-income community.) Sexually explicit productions are ineligible. Cost: $248 million.

• Electric-powered vehicles: A tax credit of up to $2,500 for buying electric-powered vehicles was expanded to include electric motorcycles. Golf carts were excluded. Sen. Ron Wyden, D-Ore., took credit for this tax break, saying it would help Oregon-based Brammo, which manufactures electric motorcycles. Cost: $7 million.

The Washington Post contributed to this report.

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