Rinse once… repeatPosted: January 3, 2013
Yesterday I wrote with incredulousness about the way that pork and tax loopholes had somehow entered into the American Taxpayer Relief Act of 2012. I was incredulous, of course, because the entire raison d’être for the act was monumental struggle around raising of taxes, reduction of spending, and closing of loopholes.
Raising of taxes we got. Some if you are a working stiff (the act did not extend the expiring social security payroll tax cut, so an estimated 160 million workers will see the tax on their paychecks rise to 6.2% — up from 4.2% — an increase of $1,000 per year if your yearly salary is $50,000.) Lots of it if you are a high income earner — and either not a corporation or not passing some grotesque amount of cash to either charity or your offspring.
Closing of tax loopholes or reduction of spending we got none of. In fact the thing that defines the act seems to be added spending of …. sit tight for this people … more than $70 billion dollars (the estimates vary with most analysts pointing to $74 billion and $76 billion as being the final number,) much of which goes to … again, sit tight … General Electric (a near-zero tax payer) and Citi, Goldman Sachs and Morgan Stanley (the architects and main beneficiaries of the economic ragnarök that has ravaged the United States economy since 2008 and companies that are all hugely profitable.)
Interestingly, this amount, +$70 billion, consumes a large amount of the estimated gain made from letting the social security payroll tax cut expire ($115 billion to $125 billion in 2013 according to an article by Todd Wallack in the Boston Globe,) and so, effectively, this aggregated spending really consists of a huge transfer of wealth from the approximately 75% of United States tax payers to multi-billion dollar corporations who does not need it.
Smoke and Mirrors
I read today an article by Alana Semuels in the Los Angeles Times, which stated that “for some consumers the sheer relief that some sort of deal was reached in Congress alleviates some of the anxiety that had been building in the final weeks of the year,” and cited engineer Kevin Leeds, 57, who, referring to his $100,000 a year salary, said that “he doesn’t mind paying a little more in taxes as long as the country begins to reduce its deficit.” I wonder if Mr. Leeds would repeat this statement if he knew that the his $2,000 a year, or so, tax increase would be shipped directly to Goldman Sachs as part of a tax exempt financing package to ensure that they can build a new shiny headquarter in downtown Manhattan or to General Electric so they can continue off-shoring their profit to avoid taxes?
When I wrote the posting yesterday I harped on the fact that the act was cleverly obfuscated, limiting the United States taxpayer’s ability to understand its impact — a critical part of avoiding accountability.
Another critical part of avoiding accountability is to avoid leaving traces back to the originators of provisions, and overnight it occurred to me that this part, the anonymity, may be more important than obfuscation in avoiding accountability, for, whereas obfuscation prevents a United States tax payer from understanding the scope of a law, anonymity prevents a United States voter from holding politicians accountable for the law.
Amazingly, it appears to be impossible to identify, finger, if you will, the politicians who squeeze in provisions in a law. Clearly, however, the nexus of much of the pork can be found in the original bill crafted by Mr. Max Baucus’ Committee on Finance in the late summer of 2012. In an article in the Washington Examiner, Timothy P. Carney has attempted to describe how this bill was overwhelmed with pork from the outset:
“Here’s what happened: In late July, Finance Chairman Max Baucus announced the committee would soon convene to craft a bill extending many expiring tax credits. This attracted lobbyists like a raw steak attracts wolves.
Former Sens. John Breaux, D-La., and Trent Lott, R-Miss., a pair of rainmaker lobbyists, pleaded for extensions on behalf of a powerful lineup of clients.
General Electric and Citigroup, for instance, hired Breaux and Lott to extend a tax provision that allows multinational corporations to defer U.S. taxes by moving profits into offshore financial subsidiaries. This provision — known as the “active financing exception” — is the main tool GE uses to avoid nearly all U.S. corporate income tax.
Liquor giant Diageo also retained Breaux and Lott to win extensions on two provisions benefitting rum-making in Puerto Rico.
The K Street firm Capitol Tax Partners, led by Treasury Department alumni from the Clinton administration, represented an even more impressive list of tax clients, who paid CTP more than $1.68 million in the third quarter.
Besides financial clients like Citi, Goldman Sachs and Morgan Stanley, CTP represented green energy companies like GE and the American Wind Energy Association. These companies won extension and expansion of the production tax credit for wind energy.
Hollywood hired CTP, too: The Motion Picture Association of America won an extension on tax credits for film production.
After packing 50 tax credit extensions into the bill, the committee voted 19 to 5 to pass it.”
So, now we know that the majority of the pork was not sneaked into the act at the last minute (a common approach,) but rather put into the nexus bill in the Summer of 2012, which shows, I guess, that lobbyists are very adapt at figuring out which bill to put their money into. As Mr. Carney puts it:
“So, this wasn’t a case of lobbyists sneaking provisions into a huge package at the last minute. That probably wouldn’t have been possible, many lobbyists told me Wednesday, because the workload in the past two weeks was too large and the political stakes were too high.
One lobbyist who worked on the bill over the summer said he would never ask a member “Hey, can you do this for a client, when their political lives are on the line.”
“The legislators and the staff go underground when things get so intense,” another Hill staffer-turned-lobbyist told me. “Nobody has time for a meeting. Nobody wants to talk about what’s going on. … The key is to plant the seed months in advance.”
GE, Goldman Sachs, Diageo — they planted their seeds over the summer. They’ll enjoy the fruit in the new year.”
Fingering the seppuku candidatesHowever, we also now are able to, at least on a high level, identify the seppuku candidates as being the 19 members of the Committee on Finance who voted for the bill. Of course we will have to add to this list the lead politicians who did not have the political courage — or wherewithal — to during the months of negotiations eliminate the 50, or so, pieces of pork from the original bill, and every single member of the Congress who voted for the law, knowing full well that it was loaded with — for the United States tax payers and voters — totally unacceptable pork.
Here is the link to the website of the United States Senate Committee on Finance. And here is a link to the Committee on Finance’s discussion of the net cost of this pork-ridden bill — $143 billion in year 2013 alone of which an astonishing $28.3 billion is directly attributable to what is euphemistically known as “Business Tax Extenders”, but probably is better categorized as “Pork” — which, in an astonishing act of insensitivity, was published on September 11th, 2012.
The committee’s voting record is not immediately available. To locate it one has to guess as to the date that the proposed bill was approved by the committee and then review the corresponding Executive Session Transcripts section. Guessing at August 2nd, 2012 leads us to a 171 page transcript, much of it reflecting self-congratulatory back-slapping by the committee members and lots of laughter, which I guess is understandable considering the rewards you must be expecting when you transfer $28.3 billion of the United States tax payers’ money to corporations and special interest groups in just one year.
The transcript is worth a read and probably should be mandatory reading for every voter in the United States. However, with 171 pages it is rather long-winded and some incentive may be needed, so let’s look at a small subset, which may sharpen a readers’ appetite. In our selected subset Mr. Tom Coburn, the United States Senator from Oklahoma, gets into a civilized argument with the Mr. Baucus related to the, for Mr. Baucus, not-so-obvious need for transparency about the allocation of $36.7 billion of tax payer money to corporation (through Business Tax Extenders) from 2013 through 2017:
“Senator Coburn: Mr. Chairman?
The Chairman: Senator Coburn?
Senator Coburn: Which begs the point. … So we want transparency as long as it is appropriated. But when it comes to the spending that we do through the tax code, we are not so sure. … Senator Burr made a great example. It is not your 24 average American that is going to buy that high dollar appliance. It is the well to do, well connected. So we are giving tax credits of $650 million to subsidize the purchase of the well to do to buy a very advanced piece of equipment. So the whole point is, and this does not include individuals, the whole point is transparency is hard. But because something is hard is not an excuse not to do it.
The Chairman: There is a significant difference between appropriations, with respect to transparency and the tax policy with respect to transparency.
Senator Coburn: I understand there is a difference of opinion, but we have a great example just in terms of the electric motorcycle. Why should not the American people know what company is going to get Senator Wyden’s electric motorcycle credit? Why should they not know that? If they can know where we are spending money everywhere else, why should they not know that? There is not a good reason not to be transparent. I would agree that there is some difficulty. This could be refined. ..
The Chairman: I would like to move along here, unless Senators — go ahead. Senator Kerry?
Senator Kerry: I just wanted to ask you, Mr. Chairman, what your plan is —
The Chairman: Keep moving along. We are going to finish this bill.”
Nice try Mr. Coburn. You got ground into the dirt, but nice try. By the way, Senator Wyden is the United States Senator from Oregon, a member of the committee, who earlier in the transcript noted — with some pride — that he has “one of these extraordinarily promising technologies, these electric vehicle technologies, in my home State, where it is paying off.” $650 million is, I guess, not a bad bounty!
Personally, excerpts like the above, gives me goosebumps, and makes me think of the transcripts from the Wannsee conference and its bureaucratic doublespeak. But perhaps I am just over-reacting.
Trawling through to page 165, we are able to finally find the vote for the $205 billion, heavily pork-loaded bill. In summary, of the members present 17 voted aye and 3 voted nay. The final tally, including proxies, was 19 ayes and 5 nays.
Here are the nays: Kyl (by proxy), Enzi (by proxy), Cornyn, Coburn, and Burr
And here is the much longer list of ayes: Rockefeller, Conrad, Bingaman, Kerry, Wyden (no surprise here!), Schumer, Stabenow, Cantwell, Nelson (by proxy), Menendez, Carper, Cardin, Hatch, Grassley, Snowe, Crapo, Roberts (by proxy), Thune, and Chairman Baucus
Perhaps, lists like these should be a reference-points for voters, so that voting happened on the basis of facts and were actually dangerous to politicians, rather than being pro-forma rubber-stamps (90% of Senators and Congress-persons are re-elected.)
The discussion about transparency is interesting. Why, precisely, should voters and tax payers not be allowed to know what senators push language into bills and what companies benefit from such language?
Obfuscation at its finest
Incidentally, one January 1st, 2013, the committee proudly announced the bill’s acceptance as law. In the process of doing so, the committee released updated revenue impact information (found here,) which did not improve the situation, with the negative impact of the Business Tax Extenders, i.e. pork, on tax revenues rising to $63 billion in 2013.
This leap from $28.3 billion to $63 billion during the period between September, 2012, and January, 2013, is remarkable and probably worthy of old-fashioned investigative journalism if such a thing still exists. As a starting point a new Business Tax Extender has appeared at an estimated cost of $5 billion over ten years. This $5 billion piece of pork, named Bonus Depreciation, is described in flowing, but unintelligible prose as follows:
“Under current law, businesses are allowed to recover the cost of capital expenditures over time according to a depreciation schedule. For 2008 through 2010, Congress allowed businesses to take an additional depreciation deduction allowance equal to 50 percent of the cost of the depreciable property. The TRUIRJCA expanded this provision to allow 100 percent bonus depreciation for investments placed in service after September 8, 2010 and before 2012 and 50 percent bonus depreciation for investments placed in service during 2012. This provision would extend the current 50 percent expensing provision for qualifying property purchased and placed in service before January 1, 2014 (before January 1, 2015 for certain longer-lived and transportation assets) and also allow taxpayers to elect to accelerate some AMT credits in lieu of bonus depreciation. This provision also decouples bonus deprecation from allocation of contract costs under the percentage of completion accounting method rules for assets with a depreciable life of seven years or less that are placed in service in 2013. For regulated utilities, the provision clarifies that it is a violation of the normalization rules to assume a bonus depreciation benefit for ratemaking purposes when a utility has elected not to take bonus depreciation.”
Shakespeare himself could not have crafted something like this…
By the way, I found myself wondering why the tax loopholes were time-limited, but then I realized that I was being daft. Continuing to extend a benefit, rather than issuing a once-and-for-all perpetual benefit, have the advantage of providing for continual quid pro quo, which is just good business.
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