From NASCAR to Rum, Tax Breaks Become Targets

President Barack Obama (R), and NASCAR Champion Tony Stewart walk arrives at an event on the South Lawn, April 17, 2012.
National Journal
Billy House
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Billy House
Nov. 6, 2013, 3:28 p.m.

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.

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