Oct. 14, 2004 – Energy companies, tobacco farmers, engineering giants Bechtel and Halliburton, and even commercial whaling captains and fishing tackle box manufacturers are among the beneficiaries of at least $130 billion in tax cuts passed by Congress last week.
The bill, originally introduced to repeal an export tax break declared illegal by the World Trade Organization, quickly ballooned into what taxpayer advocates are calling the biggest corporate tax cut in 20 years.
"This is nothing more than a very complicated, intricate legislative dance to buy votes," said Keith Ashdown, vice president of policy for the advocacy group Taxpayers for Common Sense.
The bill includes a wide range of tax cuts, including $495 million for shipbuilders, $28 million for the cruise ship industry, $9 million for US arrow manufacturers, and $11 million for makers of fishing tackle boxes. In addition, the bill eliminates excise taxes on sonar devices for finding fish, allows NASCAR track owners to write off their grandstand facilities in seven years -- saving the owners over $100 million -- and gives film and TV studios $336 million in tax breaks over the next five years. The bill also extends a tax credit for purchasing sports utility vehicles and gives tax breaks to the builders of a massive Alaskan pipeline.
A change in the definition of manufacturing accounts for over half of the total tax breaks. Under the new definition, engineering and energy companies, including electricity, oil and natural gas concerns, are classified as manufacturers and qualify for the manufacturing tax credit. The new classification includes giants like Halliburton, Bechtel, and ExxonMobil. The change is expected to cost taxpayers $76.5 billion
Slocum said the Republican-dominated Congress passed the bill to reward campaign donors and shore up support as the election approaches.
Tyson Slocum, researcher director of the consumer advocacy group Public Citizen, called the recategorization "the most egregious" part of the new bill, adding that the manufacturing tax break was supposedly designed to keep jobs in the US and protect industries from foreign competitors. "Itâ€™s just ridiculous," he said. "Weâ€™ll never face competition over electricity from Japan or China. It makes no economic sense."
The tax break, Ashdown said, "absolutely manipulated the definition of what manufacturing is." He added that engineering companies like Bechtel and Halliburton "are really not manufacturers, but they want to make sure they get their break, too."
Many Republican lawmakers disagreed, arguing that the bill would simplify tax codes, eliminate loopholes, and create jobs. "This bill is basically about manufacturing jobs," Senate Finance Committee Chairman Charles Grassley (R-Iowa) told the Washington Post. "Let the record be clear: this bill is fair. This bill is balanced."
Although Congressional Republicans largely supported the bill, there was some dissent within the party. Senator John McCain (R-Arizona) called it "a classic example of the special interests prevailing over the people's interest." Treasury Secretary John W. Snow also denounced the bill for itâ€™s "myriad of special interest tax provisions that benefit few taxpayers."
The bill also includes a $10 billion buy-out of tobacco farmersâ€™ subsidies. The buy-out allows the government to purchase depression-era quotas, which were handed out to growers to regulate production. The quota holders, many of whom are no longer farming, can exchange their old quota rights for a lump sum. Politicians from tobacco states had fought for such a buy-out for years, arguing that farmers should be compensated for dwindling demand. Originally, the provision also accompanied legislation allowing the Food and Drug Administration to regulate tobacco. When the bill passed, the buy-out remained, but the FDA regulation did not.
Slocum, the Public Citizen researcher, said that few, if any, of the tax cuts made economic sense. Instead, he argues, the Republican-dominated Congress passed the bill to reward campaign donors and shore up support as the election approaches.
The oil and gas industries, among the largest beneficiaries of the cuts, have donated over $13.5 million to Republican candidates so far in the 2004 elections, compared to a little over $3 million for Democratic candidates, according to the Federal Election Commission. Both industries traditionally support Republican candidates -- in 2000, almost three quarters of their total contributions went to Republicans.
Critics say some cuts, such as $44 million to ceiling fan importers, seem explicitly targeted at Republican donors. The ceiling fan tax break will mainly benefit Home Depot, whose political action committee gave the maximum $5,000 to President Bushâ€™s 2004 campaign, and whose employees contributed almost $200,000 to Bush and the Republican National Committee this election cycle, according to the Center for Responsive Politics, a government watchdog group.
In addition to rewarding donors, critics have accused lawmakers of downplaying the costs of the cuts. Although the official cost estimate released by the Joint Committee on Taxation said the bill would have no effect on the deficit over the next ten years, independent analysts say the estimate is misleading.
Many of the individual cuts are scheduled to expire in several years. The official estimate assumes that none of the cuts will be renewed, an unlikely and historically unprecedented outcome. A report by the Center on Budget and Policy Priorities, a Washington, DC-based research and policy institute, found that if lawmakers renewed the cuts, the bill would reduce the federal budget by $80 billion through 2014. The federal deficit is already expected to reach a record $477 billion by the end of the year.
"Itâ€™s like making sausage," Ashdown said. "Itâ€™s very messy, nobody likes to do it, but everyone likes the end result -- they get their special interest tax break."