Should eliminating special tax write-offs for NASCAR racetracks, federal rum rebates to Puerto Rico and the U.S. Virgin Islands, and similar breaks for Hollywood movie and TV producers, mining companies, railroads, and other special interests emerge as part of a solution to a budget deal?
Some lawmakers and budget experts are saying yes — and the timing now might be right.
A collection of more than 50 tax provisions is scheduled to expire at the end of 2013. The breaks represent roughly $938 billion in lost revenue through 2023, according to projections by the Congressional Budget Office.
Meanwhile, a budget conference committee must make recommendations by Dec. 13 on how to keep government funded beyond Jan. 15, and perhaps soften or replace a new round of sequester spending cuts at the start of next year.
"Yes, they should be on the table for discussion," says Rep. Chris Van Hollen of Maryland, the top-ranking Democrat on the House Budget Committee and a member of the budget conference.
With dozens of these tax-related giveaways set to expire at year's end, as they do every year or two, some critics see low-hanging fruit and say Congress should refuse to extend many of them. But Van Hollen and other experts acknowledge that there are complicating wrinkles to this argument.
The provisions touch on a range of topics, and certainly not all of them generate controversy. For example, they include items relating to charities, energy, and disaster relief. But there are also several that draw regular criticism and scornful headlines, including:
- A seven-year cost recovery period for certain motor-sport racing track facilities, the so-called NASCAR tax credit. This allows NASCAR and other organizations that promote motor sports to depreciate the investment in new facilities over seven years instead of 15 to 39 years, allowing a much larger deduction after the initial capital investment. This is projected to result in lost tax revenue in 2014 of about $24 million ($46 million in 2013).
- A 50-percent tax credit for certain railroad expenditures made by short-line and regional operators to maintain tracks, projected to result in $99 million in lost tax revenue in 2014 ($232 million in 2013).
- Special "expensing rules" for TV and film production in the United States, projected to result in $164 million in lost tax revenue in 2014 ($266 million in 2013).
- A rebate to Puerto Rico and the U.S. Virgin Islands that increases their take of the excise tax on rum, projected to result in $23 million in lost tax revenue in 2014 ($199 million in 2013).
Critics say the provisions represent tens of millions of dollars each year, and are even more important symbolically.
Yet the totals are only a fraction of the money needed to offset the $91 billion in sequester cuts set to go into effect in January. And, there's a rub.
Tax-extender provisions are assumed by CBO to be expiring as scheduled each year. That means that even if lawmakers do not extend them, they are not given credit for finding new revenue. In short, Congress's budget auditors are legally required under this budget math to assume the expirations will occur — even though Congress actually renews them year after year.
"So, it's scored as if you are not cutting anything," said Van Hollen, meaning such a move would not immediately help budget negotiators reach their cost-cutting goals, at least on paper.
Still, he and others say the larger point is that getting rid of some of these items, or at least reevaluating them, could help to prevent them from adding to the deficit over the next decade. And he said they should be among the tax and spending reforms lawmakers should be discussing.
Howard Gleckman, a resident fellow at the Urban Institute, agrees, saying the temporary nature of the tax breaks do allow lawmakers to misrepresent the true 10-year budget costs of these subsidies. He also notes the practice of making these tax breaks temporary gives lawmakers an opportunity to squeeze recipients every year or two for more campaign donations.
"The people who benefit from these things will fight real hard to keep them," he said.
Republicans, led by Rep. Paul Ryan, have are already warned Democrats against turning the panel's work into an argument about raising taxes. As a result, the search is on to instead find non-tax revenue and user fees to try and soften the next round of the automatic "sequester" spending cuts early next year.
But Ryan did say last week that "our tax code is full of carve-outs and kickbacks," and that "we need to get rid of them."
As the budget conference committee continues, one result could be that it recommends that work on tax policy be expedited, or even issues instructions for how that work should proceed, according to sources on both sides of the aisle.
And while the committee has not yet announced it, there is speculation it may recommend that tax extenders not be renewed right away this December, and instead reevaluated as part of a broader process. That would not preclude Congress retroactively renewing some later next year.