TAX BREAKS: THE FAVORED FEW
Congress snuck dozens of tax breaks into the budget deal. Here's where they went.
Congress packed budget bill with special breaks for Washington insiders
“Tax extenders” are overlooked, underpublicized and painfully arcane, known by a name that doesn’t even make sense — they should be called “tax cut extenders,” because extending the duration of temporary tax cuts is what they do.
In practice, tax extenders are legislative favors, often slipped into folds of federal bills notable for funding bigger-ticket items — such as military programs, disaster relief, infrastructure overhauls.
And despite President Donald Trump’s promise to drain the Washington “swamp,” elected officials and lobbyists conceived a new round of extenders, where they became law inside the bloat of last month’s 652-page budget bill with little public input.
A Center for Public Integrity investigation of more than 30 of these provisions reveals they benefit narrow special interests that know how to work the system — from race horse owners to StarKist tuna canners to connoisseurs of two-wheeled electric vehicles.
Congress’ Joint Committee on Taxation estimates that tax extenders and related temporary tax provisions lawmakers passed as part of the February budget deal will cost the U.S. Treasury about $16 billion in lost revenue over a decade.
Given that the Congressional Budget Office predicts the federal government’s overall budget deficit will soon balloon, potentially necessitating expensive borrowing and draconian budget cuts, these are funds the federal government can ill afford to lose, particularly when one considers the $1.5 trillion tax cut Congress passed in December.
And yet, tax extenders — often retroactive ones — have endured with little outcry.
On Wednesday, a House Ways and Means subcommittee will examine whether this is a sound way to do the people’s business. The answer may well be no. But if past is indeed prologue, these favors for the favored few are unlikely to soon disappear.
So how did we get here?
Tax extenders and similar temporary tax provisions aren’t new. Under both Democratic and Republican direction, congressional lawmakers have created and renewed a slew of them this short century.
Nor, many lawmakers say, are tax extenders inherently awful. They contend it makes defensible sense for Congress to create certain tax breaks to achieve some policy goal, and then terminate them — or make them permanent — soon thereafter.
Take the Great Recession late last decade and its economy-crushing aftermath. Lawmakers responded by enacting a slew of tax benefits with expiration dates. The goal: let people and businesses keep more of their money in the hope they’ll spend it, thereby jumpstarting economic activity. When the economy recovers, the tax breaks fade away.
After major hurricanes ravaged the U.S. Gulf Coast in 2005, Congress passed the Gulf Opportunity Zone Act. The act was filled with temporary tax relief — for housing, education, demolition costs, environmental remediation — for affected areas.
But temporary tax breaks aren’t unique to disasters, whether natural or economic.
Instead, Congress has authorized them for a menagerie of reasons, often at the behest of corporate or trade association lobbyists with the connections and financial means to bend lawmakers’ wills to their own and lubricate their pleas with a reliable flow of campaign cash.
Example: A “nuclear production tax credit” buried on page 90 of February’s budget bill. It’s poised to provide roughly $1 billion in benefits to Southern Company subsidiary Georgia Power alone — and seems unlikely to benefit anyone else.
Southern Company has aggressively courted federal officials, spending more than $106 million on federal lobbying efforts since 2010, according to the Center for Responsive Politics. Its executives and political action committee have also lavished lawmakers with campaign contributions and, in the case of Trump, spent $100,000 last year to help fund his inauguration festivities.
“Sure enough, we were able to preserve our production tax credits,” Southern Company President Thomas A. Fanning boasted last month in a call with investors.
In December 2010, the bipartisan National Commission on Fiscal Responsibility and Reform — colloquially, the Simpson-Bowles Commission, after its co-chairmen — warned the body politic of what it considered dangerous government giveaways.
In a 65-page report, the commission excoriated special interest tax carve-outs and called on Congress to axe them.
“Corporate tax reform should eliminate special subsidies for different industries,” the Simpson-Bowles report stated. “Abolishing special subsidies will also create an even playing field for all businesses instead of artificially picking winners and losers.”
But the 18-member Simpson-Bowles commission, created by then-President Barack Obama and primarily composed of members of Congress, failed to attain 14 votes needed to formally endorse the report and send it to Congress for a vote. A subsequent House bill modeled after the Simpson-Bowles report suffered greater ignominy, with most members voting it down.
With nothing restraining them, federal lawmakers continued including tax extenders in their legislation — often renewing the same breaks year after year alongside permanent tax breaks corporations lobbied hard to obtain.
It appeared for a moment, in 2015, that Congress had to some extent soured on tax extenders, making permanent some temporary tax breaks while seemingly condemning others to expiration after 2016.
That moment, however, proved fleeting.
Andrew Harnik/AP
Tax extenders slithered back when, in mid-December, Senate Finance Committee Chairman Orrin Hatch, R-Utah, unveiled what amounted to an early Christmas gift for special interests in the form of the Tax Extender Act of 2017. Five Republican senators — Chuck Grassley of Iowa, Mike Crapo of Idaho, John Thune of South Dakota, Pat Roberts of Kansas and Johnny Isakson of Georgia — signed on as co-sponsors.
Hatch’s staff at the time defended the bill as something that would “help families, individuals and small businesses in Utah and across the country.” Also: Hatch’s bill likely wouldn’t have been necessary had Congress addressed tax extenders in the December tax law it passed.
Despite signing on as a co-sponsor, Grassley professes to look dimly upon tax extenders and says he wants Congress to determine, in advance and not at the last moment, the status of federal tax provisions. That certainly will allow “businesses and individuals to know what to expect and adjust accordingly,” he said.
But that’s “not always possible with political realities,” said Grassley, who voted for the February budget bill and noted that congressional inaction in 2017 led to industries that had previously received tax extenders counting on retroactive extensions.
“Ultimately, retroactive extensions are better than no extensions,” he said.
While some fiscal conservatives and waggish liberals initially protested, it’s difficult to convince many lawmakers to block a relatively small tax break that may be incredibly important to a single member or delegation.
Congress also found itself beset with bigger battles late last year — namely, President Trump’s tax reform bill (signed Dec. 22), a stop-gap spending bill (signed Jan. 22 after a three-day government shutdown) and the Bipartisan Budget Act of 2018 (signed Feb. 9 after another, shorter government shutdown) dominated by debate over immigration and defense spending.
Few on Capitol Hill therefore paid much notice last month to the “extension of special rule for sales or dispositions to implement FERC or State electric restructuring policy for qualified electric utilities” and its tax extender brethren contained in Hatch’s proposed act, which hitched a ride onto the February budget deal — and became law in slightly altered form. Few across Washington, D.C., argued that such tax relief, if meritorious, should have been cooked into more appropriate legislation, namely Trump’s tax overhaul from December.
Meanwhile, across the nation, the term “tax extender” teetered on the tips of no tongues. Newspaper headlines and cable news chyrons instead shouted about national debts and FBI memos and Trump staffers quitting and Russians infiltrating U.S. elections.
Amid this tumult, tax extenders reaffirmed themselves as the “cockroaches of the Washington policy environment,” said Steve Ellis, vice president of nonpartisan budget watchdog organization Taxpayers for Common Sense. “They seem to always survive.”
What do tax extenders do?
Tax extenders share the commonality of cost: When the federal government gives a company or industry such a tax break, it means the federal government is, in effect, losing money from taxes it won’t be collecting.
This isn’t folly, necessarily. Temporary tax breaks may spark economic activity, prompt businesses to invest or help pump money into communities. They’re not created equally, nor are their results the same.
“Some provisions may warrant being made permanent, while others may require a phase-out and maybe others should be ended now,” Grassley said.
And at least a few temporary tax breaks passed last month beg for sympathy.
Could anyone with half a heart argue against helping low-income areas of Puerto Rico, an already depressed U.S. territory where, because of Hurricane Maria last year, tens of thousands of people still don’t have reliable electricity or running water?
Who, really, would fault the federal government for helping college students pay for school, or underemployed Native Americans find jobs, or mine rescue teams obtain better training?
Republican or Democrat, most politicos agree on the merits of efforts such as these.
The route they took toward becoming law? That’s another matter.
The government typically uses tax incentives to prod a corporation or industry to behave a certain way.
But many tax extenders in Congress’ latest litter are retroactive, the benefits extending backward, not forward — something not unprecedented, but more than a little strange, since Congress can’t incentivize behavior that has already occurred.
Not even a procedural speed bump, such as a Senate committee hearing, stood in the tax extenders’ way before lawmakers largely incorporated them into the February budget bill.
“It’s just shipping somebody money,” said Grover Norquist, president of conservative activist organization Americans for Tax Reform. “Some tax extenders are good tax cuts. But some become vehicles for icky stuff that would not stand on its own. Retroactivity — it’s even more questionable.”
That Republicans extended the lives of tax extenders — the GOP controls both the House and Senate — makes the situation even more curious.
Republicans, after all, vowed in their 2016 party platform to “eliminate as many special interest provisions and loopholes as possible and curb corporate welfare.” The platform likewise advocates, in the name of “fiscal sanity,” for a constitutional amendment requiring federal budget balancing to “prevent deficits from mounting to government default.”
Retroactive tax provisions will ostensibly make federal budget imbalances widen, not narrow. And even the Joint Committee on Taxation’s cost peg of $16 billion plus may underestimate the real fiscal effect, as some breaks are likely to be renewed year after year after year.
That angers some Republicans who say their party must not lose its mantle of fiscal conservatism.
“Tax extenders? Disappointed? Very,” said Michael Steele, the Republican National Committee’s chairman from 2009 to 2011. “Republicans — they made a promise to the American people that they would not drive us into debt.”
Lamented Rep. Walter Jones, R-N.C., who in February voted against the budget bill that contained new tax extenders: “The deficit hawks seem to be staying in the nest.”
Still here after all these years
Some tax breaks winked into existence years, even decades ago with a set date for expiration.
Tax extenders extended their lives when Congress declined to make them a permanent part of tax policy but didn’t want to kill them, either.
In 1993, the federal government approved a Native American employment tax credit, which gave private businesses on Indian reservations up to a $4,000 credit per employee hired — as long as the worker is a Native American or a spouse who lives on Indian land and makes up to $45,000 a year.
The tax credit should have expired in 2003. But Congress has since extended the break every or every other year, normally retroactively, leaving businesses unclear about whether the benefit will last. The Bipartisan Budget Act of 2018 allowed the provision to retroactively cover businesses through 2017.
The American Jobs Creation Act of 2004 allowed film and television production companies to immediately deduct up to $15 million of their expenses for certain movies and television shows, which foreign countries were wooing with attractive incentives. The tax benefit was supposed to expire in 2008.
It didn’t. And 10 years hence, Congress has consistently extended the benefit on a temporary basis, most recently in February. It now offers the benefit to theater production companies, too.
One tax extender contained in the February budget bill allows the cost of purchasing a racehorse to be depreciated over three years, regardless of when the racehorse begins training. Without the tax extender in place, racehorses placed into service before the age of two were depreciated over seven years.
Why this matters to racehorse owners: a faster depreciation schedule means they can claim higher expenses early on and lower their short-term taxable income. Racing advocates argue there’s a public benefit to all of this: Horse racing events become more affordable and accessible.
Among the most esoteric tax provisions is a tax credit of 10 percent, capped at $2,500, for the purchases of two-wheeled plug-in vehicles that weigh less than 14,000 pounds and are capable of traveling at least 45 miles per hour on roads.
Congress’ Joint Committee on Taxation predicts the federal government will lose about $500,000 in revenue annually because of the tax credit — not much, all considered. But the credit is worth enough to Zero Motorcycles, Arcimoto and Polaris Industries to all hire Duane Gibson of GovBiz Advantage to lobby Congress, paying his company $225,000 combined in 2017, according to federal lobbying records.
Hatch’s Senate Finance Committee spokeswoman, Katie Niederee, says the senator has a track record of vetting tax extender policies in his committee. Hatch’s December 2017 bill, she noted, was the basis for “bipartisan provisions that just became law” while acknowledging “there’s still work to do.”
The Trump administration “is concerned with future extensions of special interest tax deductions and benefits in the wake of tax cuts and reforms that were enacted in December 2017,” Trump’s Office of Management and Budget wrote last month in a statement of administration policy. Those concerns weren’t enough to keep Trump from signing the budget bill, which included a host of military spending Trump considers necessary for national security.
Some lawmakers want the process that led to these tax provisions to end.
“A real tax reform process would have considered the expired tax provisions, and dealt with them in a fiscally responsible way,” said Sen. Mark Warner, D-Va., who serves on the Senate Finance Committee. “Instead, Republicans punted on the hard choices we were sent to Congress to make … The use of expiring tax provisions also masks the true deficit harm, since Congress has repeatedly extended these provisions without paying for them.”
On this point, Warner finds himself with two unlikely allies: Americans for Prosperity and the Freedom Partners, two free-market advocacy powerhouses backed by billionaire industrialists — and preeminent GOP bankrollers — Charles and David Koch.
In a joint letter to Congress in January, prior to the Bipartisan Budget Act of 2018’s passage, the groups urged lawmakers to “oppose any effort to insert corporate welfare provisions into the newly reformed tax code” and to “stand strong against the special interests” that benefit from tax extenders.
Congress ignored them.
What’s next for temporary tax breaks?
Will tax extenders live on in their current form when Congress next entertains a barrage of pleas and prodding from special interest lobbyists? Will Republicans and Democrats agree, once and for all, that there’s a better way to write tax policy?
Peering into the Magic 8 Ball of politics: “Reply hazy, try again.”
That’s because changing the way tax extenders work appears low — very low — on Congress’ priority list, even if they’ll eventually have to deal with temporary tax provisions contained both in February’s budget bill and December’s tax reform law.
From immigration reform and welfare reform to transportation and trade, big-bore initiatives are likely to dominate lawmakers’ agenda at a time when most everyone in the House, and about one-third of Senate members, are already preoccupied with their own re-election campaigns.
And godspeed to any do-gooder who believes tax extenders will intrigue and outrage Americans at the level of any of 100 contemporary political dramas: a possible Trump-Kim Jong Un summit, the president’s alleged affair with porn star Stormy Daniels, the parade of top officials walking out the White House door.
Discussion of tax extenders won’t disappear completely. Hatch, for his part, “will keep working with his colleagues to determine the best path forward,” Niederee said.
His time, however, is limited: Hatch isn’t seeking re-election, and he’ll be a former senator come January. Meanwhile, “Senate Republicans have not engaged with Democrats on substantive conversations regarding a new round of extenders,” said Rachel McCleery, a Senate Finance Committee spokeswoman for Sen. Ron Wyden of Oregon, the committee’s ranking Democrat.
Some small measure of drama could come Wednesday, when House Ways and Means Tax Policy Subcommittee Chairman Vern Buchanan, R-Fla., hosts a public hearing entitled, “Post Tax Reform Evaluation of Recently Expired Tax Provisions.”
Catchy title no, although Buchanan last month promised to use the hearing to affect change “by thoroughly examining the policy underlying temporary provisions often called ‘tax extenders.’” Buchanan’s been coy since, his office not replying to several requests for comment.
The status quo is just fine for industrial interests that have relied on the de facto permanence of tax extenders that benefit them. It’s also good news for hired-gun lobbyists who make money on them. Were Congress to make tax extenders permanent, or do away with them altogether, lobbyists for special interests seeking the extensions would have to find something else to lobby on. Don’t expect any calls for reform from their camps.
Alan Simpson, the former Republican senator from Wyoming and one half of the Simpson-Bowles Commission leadership duo, said tax extenders and their ilk are emblematic of Congress’ broader inability to control spending, curtail borrowing and operate within the federal government’s means.
Until the federal government figures this out, Americans — particularly the nation’s youngest — should be frightened about their financial futures, he said.
“Congress? They don’t give a rat’s ass about the next generations,” Simpson said. “The losers are the grandchildren of the Americans who are in their 20s and 30s. When they’re 65, they’ll be picking grit with the chickens.”
With reporting from Carrie Levine, Sarah Kleiner, R. Jeffrey Smith, Kytja Weir, John Dunbar and Ashley Balcerzak
This tax credit to ‘spur’ next-gen biofuels rewards past behavior
Two extenders aim to spur production of cellulosic biofuels — low-carbon renewable fuels made from switchgrass, algae and other feedstocks — but only for one year. The provisions, like many of the credits, received a retroactive extension for 2017. And like many, they have drawn fire as the wrong way to implement tax policy.
First enacted in 2008 and renewed multiple times since, the cellulosic credits are meant to encourage a buildout of “second generation biofuels.” One guarantees companies a tax credit of $1.01 for every gallon of cellulosic biofuels they sell in a year. The other gives those who build a cellulosic biofuels plant a bonus period to write off its depreciation; eligible facilities can deduct half their total construction costs during their first year of service.
Opponents say short-term, backdated extenders like the cellulosic credits defeat their very purpose: influencing future behavior. “This is a straight giveaway,” says Steve Ellis, of Taxpayers for Common Sense, a budget watchdog group that opposes subsidies for biofuels and biomass energy. “Why are we giving credit to companies for cellulosic biofuels they already produced?”
Proponents, who range from environmental groups eager to support carbon-cutting energies to ethanol companies eager to try cutting-edge technologies, sound a similar note, but for different reasons. Ed Hubbard, general counsel of the Renewable Fuels Association, puts it this way: “When you only do a retroactive extension, it decimates the impact of a tax credit.”
The renewable fuels group represents companies making cellulosic ethanol out of corn husks, leaves and cobs — the main feedstock on the market. The association and its industry counterparts, such as Growth Energy and Advanced Biofuels Association, have pushed to extend the cellulosic credits over a longer, 5- to 10-year period similar to what wind and solar have had. In 2017, the groups spent a combined $2.76 million lobbying on biofuels policy, including their efforts on behalf of these tax credits. They argue the incentives help companies overcome financial hurdles with investors reluctant to bankroll a fledgling industry without government support.
The biofuels industry has the ear of some influential members in Congress, including Sen. Chuck Grassley, R-Iowa, home to one of the nation’s few commercial-scale cellulosic biofuels plants, operated by Poet-DSM Advanced Biofuels. In 2017, Poet spent $1.6 million lobbying on a range of issues, including these credits. It tops all alternative fuels companies (wind, solar, geothermal and the rest) in congressional campaign contributions for the 2018 election cycle, donating $254,950 in total so far. Many of the top 20 recipients of the industry’s funds hail from farm states, where biofuels carry weight with constituents. They include such allies as Sens. John Thune, R-S.D., Heidi Heitkamp, D-N.D., and Deb Fisher, R-N.D., each of whom has received tens of thousands of dollars in campaign contributions in 2017 and 2018.
Cellulosic biofuels enjoy broader, bipartisan support than conventional biofuels, yet they’re still a tiny portion of overall production. Indeed, the Joint Committee on Taxation estimates that the latest extension will cost just $13 million — a fraction of the $2.6 billion paid out to biodiesel. The small volumes produced leave some questioning how long Congress should keep the cellulosic biofuels industry afloat.
“We have had to fight tooth and tongue to keep these credits in play,” says Mike McAdams, of the Advanced Biofuels Association, who considers it “a great thing to get 2017.” He and other industry lobbyists are now visiting Capitol Hill, meeting with lawmakers, pushing to extend the cellulosic credits for 2018 in a March spending bill.
For some, the fate of the credits seems too uncertain to count on. Take Fulcrum BioEnergy, a company that converts municipal solid waste headed for landfill into renewable fuels. Last fall, it secured financing to build its first commercial plant near Reno, Nevada, which will hire more than 100 employees and produce at least 10 million gallons of cellulosic biofuels a year for use in heavy-duty trucks and airplanes.
Ted Knieshe, Fulcrum’s vice president of business development, says the company will qualify for both credits — if extended beyond 2018. The $200 million plant, slated for operation in late 2019, has to be up and running before Fulcrum can benefit. But given the extenders’ on-again, off-again nature, Knieshe says, “We can’t plan on them.” He hopes the company can take advantage of the provisions for similar plants planned across the country in upcoming years.
“There are a lot of exciting projects,” he says. “Now is not the time to walk away from the cellulosic second generation industry.”
A new take on an old carbon capture credit gets backing from many sides of the climate change debate
It turns out you can get Congress to take some action on climate change. You can even get coal and oil companies to lobby for it.
That’s the strange-bedfellows appeal of carbon capture, technology that traps climate-warming gases before they escape into the atmosphere and wreak havoc. Tucked in February’s budget package is a long-lobbied-for expansion of a tax credit its supporters hope will give the industry a major boost.
The credit, which the nonpartisan Joint Committee on Taxation estimates will cost $689 million through 2027, isn’t a slam dunk with environmental groups. Some object to more subsidization of fossil fuels or fear that underground carbon storage will introduce environmental risks. But some green groups joined the push to expand the credit, arguing that carbon capture is a necessary part of the fight to stave off ever more severe changes to the climate.
Congress created the credit in 2008. Part of the February revamp guarantees firms the incentive if they begin construction before 2024, removing a tonnage cap that had made the credit essentially useless as an aid for projects to get financing, said Kurt Waltzer, managing director of the Clean Air Task Force, an environmental group.
“The old credit did not stimulate new projects,” he said. “If we’re going to see the costs come down in the way that they have with wind and solar, we just need more projects.”
Congress also increased the credit from $20 to $50 per metric ton of carbon captured, if it’s simply sequestered underground, and from $10 to $35 if it’s used — to help recover more oil, for instance. Newly eligible: Companies grabbing carbon to make it into products or sucking it right out of the air — as opposed to a smokestack — with the technological equivalent of “a mechanical tree,” said Matt Lucas with the Center for Carbon Removal.
Some key supporters in Congress hail from coal country, where carbon capture is viewed as a way to protect miners’ jobs and companies’ bottom lines. Among those allies: Sens. Heidi Heitkamp, D-N.D., Shelley Moore Capito, R-W.V. and John Barrasso, R-Wyo. Capito received more from coal-mining interests during the 2014 election cycle, her most recent campaign, than anyone but the current Senate majority leader and then-House speaker — just over $200,000, according to the Center for Responsive Politics. Far more modest contributions to Heitkamp and Barrasso still rank them among the top 20 recipients of coal interests’ cash in the 2018 election cycle so far. But another champion of the credit is Sen. Sheldon Whitehouse, the climate-hawk Democrat from Rhode Island, whose top contributor in the last five years was the League of Conservation Voters.
Outside of Congress, advocates for carbon capture are similarly varied. Coal company Peabody Energy. Steelmaker ArcelorMittal. The Natural Resources Defense Council, a major environmental group that wrote in support of the credit last year, though it clarified recently that it supports carbon capture in ways that “phase out our reliance on fossil fuels.” Occidental Petroleum paid an outside lobbying firm $130,000 in 2017 solely to lobby on the credit-extension push. NRG Energy and Archer Daniels Midland, which use carbon capture on a coal-fired power plant and a corn-processing facility, respectively, both disclosed lobbying on matters related to the technology last year, too. (Existing projects will get the higher credit, though the increase phases in over several years.)
Illinois-based LanzaTech, which licenses technology that turns carbon-containing gases into products such as ethanol, is among the companies that could get a boost from the credit because their customers now qualify for it. Persistence and a big-tent lobbying strategy paid off, said Laurel Harmon, the company’s vice president of government relations. Unlike climate-change action, turning a waste product into money isn’t caught in the partisan divide. “That appeals to everyone,” she said.
New rules solidify tax reform measure for the craft beverage industry
Tucked away near the end of the 652-page budget deal are two provisions effectively finalizing adoption of a stand-alone bill that was passed just a few months ago to aid the craft beverage industry.
The two provisions had been left out when Congress adopted the Craft Beverage Modernization and Tax Reform Act almost in its entirety in December to give tax breaks to breweries, wineries and distilled spirits producers through 2019.
Margie A.S. Lehrman, executive director of the American Craft Spirits Association, said the December tax bill had to leave out the two provisions to conform to a Senate rule that requires reconciliation measures to deal strictly with budget matters.
The two provisions are largely technical. One makes it clear that none of the tax bill’s provisions “preempt, supersede, or otherwise limit or restrict" any state or local statutes that regulate the craft beverage industry. The other changes recordkeeping requirements, eliminating duplicate reports and accounting rules for breweries that have a tasting room within the premises and a separate bar area.
Now that all the pieces are in place, Lehrman said the next step for her group is to work with Sen. Ron Wyden, D-Ore. — who received nearly $250,000 from the beer, wine and liquor industry during the past five years — to make the tax breaks permanent.
The December tax bill traces its origin to a compromise that was struck between the Brewers Association, which represents craft brewers, and the Beer Institute, whose membership includes Anheuser-Busch InBev and MillerCoors. It aids beer producers of all sizes, with the biggest tax breaks going to domestic craft brewers, while also benefiting larger importers — as well as wineries and distilled spirits producers.
The tax breaks mean "all the difference between operating in the red versus operating in the black," Lehrman said. "I've had craft distillers tell me that this has ensured not only their survival but also being able to map out a long-term business plan."
Wyden's spokeswoman Rachel McCleery said the senator recognizes that the craft beverage industry is "an extremely important part" of Oregon’s economy, and that its "extraordinary growth" in recent years calls for tax and regulatory reform.
“Sen. Wyden believes it’s time we update our tax code to reflect this new reality and make sure outdated rules don’t stand in the way of good Oregon jobs," McCleery said.
A Georgia utility nets $1 billion in tax savings after a long lobbying campaign
“We are grateful to the current administration and Congress,” Southern Company President Thomas A. Fanning told investors in a phone call on Feb. 21, for approving what was essentially one of the largest windfalls in the budget bill benefiting a single firm.
The “nuclear production tax credit” buried in the bill would provide roughly $1 billion in benefits to the customers of his firm’s wholly-owned subsidiary, Georgia Power, Fanning said. It allows a utility building the only two new nuclear power plants in America to pay substantially lower taxes, and thus potentially charge lower rates.
Initially approved by Congress in 2005 to support the entire nuclear industry, the credits were to be pegged to the amount of electricity produced and sold once the reactors’ operation begins. Eligibility was supposed to expire at the beginning of 2021, but the credit was extended for Southern Company because of snafus and delays in Georgia Power’s construction of the two reactors at Waynesboro, Georgia, which are now unlikely to begin operation until late 2021 or beyond.
The untested new design of the reactors has caused estimated construction costs to roughly double over the past decade, and helped push designer Westinghouse Electric Co. into bankruptcy. The “Public Interest Advocacy” staff employed by the state of Georgia’s Public Service Commission declared in a December report that even with the tax credit extension, the project “would still be uneconomic” due to steep declines in the cost of competing energy sources.
The staff also said the project had been mismanaged, but that conclusion did not keep the five members of the Georgia commission, all Republicans, from approving its continued construction. As the third largest utility in the country, the Southern Company wields substantial political clout, and its determination to complete the two nuclear plants — at a site named after a former company chairman, Alvin Vogtle — corresponds with the Trump administration’s desire to promote what Secretary of Energy Rick Perry terms “clean, reliable and American nuclear energy.”
Four months before Congress approved the tax credit extension, Perry approved $3.7 billion in new federal loan guarantees for the Vogtle reactor effort, which came on top of $8.3 billion approved by the department during the Obama administration. Southern Co. President Fanning, in a television interview, expressed gratitude not only to Perry but to Commerce Secretary Wilbur Ross and Vice President Mike Pence for helping the firm obtain another $3.68 billion in financial guarantees last year from the Toshiba Corporation, Westinghouse’s owner, to compensate for Westinghouse’s withdrawal.
Southern’s ambition was initially to get officials at the White House and the Energy Department to lobby Congress for discrete legislation specifically authorizing the nuclear energy tax credit extension, according to copies of emails sent last June by Southern’s chief Washington lobbyist, Bryan D. Anderson, to senior White House and Energy officials. The emails were first disclosed by the trade publication E&E News.
Sen. Johnny Isakson, R-Ga., a member of the Senate Finance Committee, told the Atlanta Journal-Constitution last September that he intended to play a leading role in procuring the tax credit for Southern Company by year’s end. He said he was well positioned to bargain for the credit with colleagues: “There are … plenty of folks who have an interest in tax credits in the Senate who will need help getting theirs through. I know who they are and where some of them live.”
His press spokesperson Marie Gordon confirmed in an email that “Senator Isakson worked closely with Congressional leadership and the Georgia congressional delegation to ensure the nuclear production tax credits were extended.”
According to the Center for Responsive Politics, Isakson was the top recipient of Southern Company-related campaign donations in 2015 and 2016, receiving $73,000. Georgia Power gave Isakson $10,000 in the same period. In all, members of the Senate Finance Committee got more cash from Southern in 2015 and 2016 than did the members of any other Senate committee.
Besides spending $100,000 on Trump’s inauguration in January, Southern. Co. also spent nearly $13 million on its lobbying on the tax credits and other issues in 2017, putting it near the top of all U.S. firms in its spending to sway lawmakers. Throughout the year, it never had fewer than 15 of its Washington staff assigned specifically to promote the tax credit, including former legislative directors, aides, counsels, or advisers to five House or Senate members. The effort included $440,000 in payments to three independent firms for lobbying on tax credit promotion and other issues; this lobbying effort employed a former chief of staff to the Senate Majority Leader, former aides to three other Senators, and the former chief of staff to the House Natural Resources Committee.
“Sure enough, we were able to preserve our production tax credits,” Fanning boasted in the call with investors. Company spokesman Schuyler Baehman declined to make any further comment.
Others were not so pleased with the outcome. Peter Bradford, a former Nuclear Regulatory Commission member, said that even though Georgia Power has so far spent nearly $4.5 billion on the reactors, killing them would cost ratepayers less than completing them. “Almost every forecast made with such assurance by the company … has proven expensively wrong,” he told the Georgia commission in December testimony on behalf of the Southern Alliance for Clean Energy.
Noting the clout of both Southern and the nuclear industry, Bradford said in an email that he was “actually surprised that Congress took as long as they did, given the willingness of both parties to put the public treasury behind absolutely uncompetitive reactors for no good reason.”
On the day Congress approved the tax bill, Southern Company’s stock price rose slightly but declined in the following weeks. Analysts have nonetheless predicted that the firm’s managers will soon increase the dividend it pays to investors, including those in the company’s management. Fanning’s compensation in fiscal year 2016 was $15.8 million, with the bulk of that award in stock.
Congress extends a popular tax break to help freight railroad maintenance
It amounts to just a few words in Section 40302 of the budget bill. But it equals millions of dollars for private railroads as a retroactive tax break on maintenance work done in 2017 on the little known, short stretches of track that connect factories, refineries and mines to America’s network of major longer-haul freight lines.
The measure, which boasts widespread and bipartisan congressional support from around the country, helps more than 600 short line railroads running across America’s industrial backwaters. The special break is expected to cost $194 million in lost revenue through 2018 but extend a lifeline to those railroad companies that keep an estimated 30 million truckloads per year off highways as they transport materials for the first and last miles of their journeys to and from grain elevators, quarries and farms in rural areas across the country.
“We have a lot of railroad and not a lot of traffic on that railroad,” said Douglas Golden, president of one such company, Carolina Coastal Railway Inc. “The tax credit for us is vital because it really allows us to budget a lot more for maintenance.”
His railway serves about 50 different companies with several lines snaking through rural stretches of eastern North Carolina to deliver stone dug from a quarry for highway projects and shuttle chicken feed from factories to the major railroad tracks run by rail giants such as CSX and Norfolk Southern.
To keep up with his aging network of more than 200 miles of tracks, Golden said Carolina Coastal annually tries to replace at least 10,000 railroad ties, update six to eight of the 75 bridges its tracks cross and replace lighter metal rails to accommodate today’s heavier freight cars. The tax credit will help offset the approximately $2 million Carolina Coastal Railway already spent on such maintenance in 2017.
“We kind of thought it was going to happen so we spent accordingly,” Golden said, “If it hadn’t happened, we probably would have been screwed, pardon my French.”
Originally created as part of the American Jobs Creation Act of 2004, the tax credit was supposed to expire at the end of 2009, but it has been rolled down the line with multiple extensions, leading to what its backers say has been more than $4 billion in track investment nationwide. There’s been little apparent opposition.
The American Short Line and Regional Railroad Association has been leading the push for the tax break for years, terming it the center of its legislative advocacy agenda. In 2017 alone, the trade group spent $820,000 on lobbying, the most in the past 20 years, according to the Center for Responsive Politics.
The group’s political action committee has also been opening its checkbook wider in recent years, doling out a record of more than $200,000 in political contributions from 2015 through 2016, according to the Center’s data. The PAC plied the now retiring three-term chairman of the House transportation committee, Rep. Bill Shuster, R-Pa., with more than $19,000 since 2009.
Also lobbying for the tax credit have been other industry groups that stand to benefit from the infrastructure projects, including the National Railroad Construction & Maintenance Association, the Railway Engineering Maintenance Suppliers Association, the Association of American Railroads and individual companies such as Alaska Railroad Corp., according to lobbying records.
These groups have been pushing a stand-alone bill to make the credits permanent. The latest version, known as the Building Rail Access for Customers and the Economy Act, introduced in January 2017 by Rep. Lynn Jenkins, R-Kan., had 250 cosponsors in the House and 55 on its Senate companion, far more than would be needed to actually pass a bill. But it has stagnated without a vote.
Jenkins did not respond to a request for comment about the bill but said upon introducing it that the measure was a “common sense move that is good for the economy” and will “help our communities have access to the important goods they need.”
Still, even one of the chief lobbyists who has represented many of the most active rail interest groups hasn’t expected any such stand-alone bill to pass in the current congressional climate.
Instead, Chuck Baker, partner with D.C. lobbying firm Chambers, Conlon & Hartwell, LLC, said his team has successfully used the bill’s extensive co-sponsorships to signal the widespread support for the tax extender. Every state but Hawaii has at least one shortrail line in it, he said, which hits home to congressional members nationwide.
“These folks typically tell us, ‘I don’t care about railroads, per se, but I care about the people you serve,’” Baker said.
However, the actual mechanics of how the retroactive measure was included in this year’s budget bill remain a mystery even to Baker — who has worked on the issue for some 14 years. “Exactly what happened in all those rooms without us there, I wish I knew,” Baker said.
About 350 railroaders descended on Washington, D.C., last week to tell their stories to Congress: an annual event known as Railroad Day. Baker said he’s pushing to make permanent the tax credits for shortline track maintenance for 2018 and beyond as the House Ways and Means Committee is poised to sift through which measures should be kept or scrapped. “We stand ready to engage and we’d be more than happy to yell from the tree tops,” Baker said.
Congress gives NASCAR a boost with a tax break for improving speedways
It’s not a big tax break, but at this point stock car racing can use all the help it can get.
NASCAR is suffering from falling attendance and plummeting television ratings, so Congress gave the super speedways that NASCAR races on what they wanted in the February budget bill..
In a nutshell, a provision in the bill allows racetracks to write off taxes owed on improvements to facilities at an accelerated rate. The write-off is backdated — it extends through 2017. Track owners benefit to the tune of $13 million in 2018, according to the Joint Committee on Taxation.
It’s not just the big super speedways that have cause to celebrate. The tax break extends to all race tracks, which number around 1,200, according to some estimates. The racing industry defends the break, saying it puts them on a level playing field with competitors in the entertainment world, like amusement parks. But not everyone agrees it’s sound policy.
“It’s a perfect example of a single industry asking for what it wants and getting it in a temporary bill so it looks cheap, and then it gets extended and extended and extended,” said Ryan Alexander, president of Taxpayers for Common Sense. It’s bad tax policy, she said. It’s making decisions on narrow issues without putting them in context.
It is, however, smart business.
“I think that hiring a lobbyist and making a few contributions and getting a tax extender and getting it renewed is a pretty good investment,” she said.
In this particular case, the biggest client is the International Speedway Corp., located in Daytona Beach, Florida. The publicly traded company owns and operates 13 tracks. The company’s go-to lobbyist is Louis Perry, whose firm, Cornerstone Government Affairs, billed the speedway group $160,000 for 2017 alone — though some of that has to do with “programs associated with the Department of Defense.”
Perry was joined by Michael Smith, also of Cornerstone. A call to the firm was not returned.
As far as terms of leveraging influence, the company has the contribution part down too. The company’s political action committee gave $94,000 to federal candidates in the 2016 election cycle, according to the Center for Responsive Politics.
Tesla customers are among those who would benefit from transportation-focused tax credits
Two measures buried deep in the budget bill benefit a select group of alternative fuel vehicle aficionados, by helping offset their 2017 costs for either installing refueling stations or for purchasing two-wheeled electric motorcycles.
One of the measures gives a 30 percent tax credit on the costs for installation of refueling tools at a business or home, such as adding a biodiesel pump to a gas station or a charging plug for a Tesla to a suburban garage. The tax break comes at a price of an estimated $49 million in lost tax revenue through 2018, according to Congress’ Joint Committee on Taxation.
The other, smaller measure gives a tax credit of 10 percent, capped at $2,500, for a narrower and very specific subset of the electric transportation universe: purchases of two-wheeled plug-in vehicles weighing less than 14,000 pounds yet capable of traveling at least 45 miles per hour on roads. That credit has a more limited impact, resulting in lost tax revenue of less than $500,000 per year, according to the joint committee’s estimates.
Both measures had earlier short-term incarnations that expired, then were reinstated in the budget bill as retroactive breaks for 2017 expenses. They also come on top of other tax incentives at the state and federal level intended to support investment in alternative energy transportation.
Tesla, whose customers stand to benefit from the refueling measure, reported spending $740,000 lobbying last year on issues including tax credits, according to data from the Center for Responsive Politics. The company did not respond to a request for comment.
Natural Gas Vehicles for America, a trade group of more than 200 companies supporting vehicles powered by natural gas or biomethane, has praised the passage of the refueling measure along with another tax incentive. It has pledged to work with Congress “to extend these proven clean air investment incentives for 2018 and beyond.”
Supporting investment in refueling locations will help organizations of all kinds with fleets of garbage trucks, converted Ford F-150 pickup trucks or school buses that use natural gas, according to NGVAmerica president Dan Gage. And it makes it possible for expanded investment in alternative fuel trucks instead of diesel ones.
“If we want clean air, we need cleaner trucks,” Gage said. “The technology is there.”
Companies that make electric vehicles whose customers could stand to benefit from such tax breaks include Zero Motorcycles, Arcimoto and Polaris Industries. The three all hired Duane Gibson of GovBiz Advantage to lobby Congress, paying his company $225,000 combined in 2017, according to lobbying records. He previously worked in Congress, including as a senior counsel to a House Transportation and Infrastructure subcommittee.
Gibson did not answer questions about his lobbying work on the credits. Polaris and Arcimoto did not respond to requests for comment.
“Although Zero’s customers are impacted by the tax extender, the company does not wish to comment on government relations,” company spokeswoman Ariel Rothbard said.
Zero Motorcycles did brag about its efforts to get electric motorcycles included in similar tax credit measures in 2015, saying it took the lead in working with a nonprofit called Plug-In America and a coalition of other electric motorcycle companies.
“Standing together with companies coast-to-coast, the coalition rallied Congress to take action and expand green jobs in this exciting and emerging industry,” it wrote in a press release in late 2015. “Zero Motorcycles dealers, customers and fans weighed in as well, urging Congress to support the extension of the plug-in tax credits.”
It’s not clear whether the tax breaks will be able to win another extension or might be made permanent for electric motorcycles such as the Zero bikes, which cost more than $8,000 each. Zero appears to remain optimistic, though, telling its consumers on its website that electric motorcycles purchased this year are “not yet eligible.”
Growing timber is a big investment. This tax break helps a few companies afford the risk
As part of the budget deal that President Donald Trump signed into law in February, Congress inserted an obscure provision that doles out tens of millions of dollars in tax breaks to a handful of timber companies.
Among the more than 30-odd "extender" provisions — retroactive, temporary tax breaks — in new spending is an arcane, one-sentence provision that extends a special tax rate for "qualified timber gain."
The provision is aimed at timber companies that are set up as a "C corporation" — a class of business that isn't afforded the relatively lower capital gains rate enjoyed by mom-and-pop forest landowners and other entities.
Under the provision, C corporations get an extension of a special tax rate of 23.8 percent through 2017 for timber income, so long as it's from the harvest of timber or sales of standing trees owned for at least 15 years. That’s a break from the top rate of 35 percent that would have otherwise applied.
Dave Tenny, president and CEO of the National Alliance of Forest Owners, said getting the lower capital gains rate for timber income is crucial to the industry, given that growing timber is a long-term, high-risk undertaking that requires significant investment.
In a July statement to the Senate Finance Committee, Tenny also argued that getting the lower capital gains rate helps promote forest retention "by reducing pressure to convert timberland to other uses that generate ordinary income more quickly with less risk."
But Tenny told the Center for Public Integrity that his group didn't lobby for the provision to set the special tax rate for C corporations, pointing out that it benefits only a select few in the industry.
According to the Joint Committee on Taxation, the provision means an estimated $32 million in tax breaks for timber companies.
The special tax rate has long been championed by Sen. John Boozman, R-Ark., who has tried for a number of years to make it permanent by introducing the Timber Revitalization and Economic Enhancement Act.
Boozman's bill would be a boon to Deltic Timber Corp., a C corporation based in El Dorado, Arkansas.
Deltic has been lobbying intensely for Boozman's bill and similar tax measures relating to natural resources issues, spending a total of more than $600,000 during the past four years. It also contributed $11,550 to Boozman’s re-election campaign in 2016.
But Boozman’s bill has failed to pass since its first introduction in 2013.
Still, under the new budget deal, Deltic enjoys the special tax rate for its 2017 income. It also merged in February with Potlatch Corp. to form PotlatchDeltic Corp., making it eligible for the lower capital gains rate going forward even without Boozman’s bill since it’s no longer a C corporation.
PotlatchDeltic did not respond to the Center for Public Integrity's request for comment.
Boozman has argued that the special tax rate would provide "parity" to timber companies and give them "greater certainty and incentives to make investments and expand operations."
Still, Boozman’s spokesman Patrick Creamer said the senator wasn't involved in pushing for the special tax rate to be part of the new budget deal.
Extended tax breaks support business investment on Native American reservations
Native American tribes suffer among the highest unemployment rates in the country. In order to encourage the hiring of Native Americans and investment on Indian lands, tribes have lobbied hard to keep two tax extenders that date back to the 1990s and have been repeatedly renewed on a short-term basis.
The new budget bill continues that tradition. The Indian employment tax credit gives private businesses on reservations up to a $4,000 credit per employee hired, as long as the worker is a Native American or a spouse who lives on Indian land and makes up to $45,000 a year. An accelerated depreciation provision lets certain businesses on reservations write off investments faster than regular tax code schedules, reducing income tax liability. It shortens recovery periods of equipment and personal property, for example, to two years instead of three, three years instead of five, or 12 years instead of 20.
The National Congress of American Indians (NCAI), the largest national membership organization of tribal governments, routinely advocates for these provisions, though wishes they would be made permanent provisions of the tax code. The Native American Finance Officers Association (NAFOA) also publishes information about the provisions and recommends similar tweaks.
Groups that listed the Indian employment tax credit on their lobbying filings in 2017 include payroll services company ADP LLC, nonprofit National Employment Opportunities Network, a coalition that includes businesses that help other businesses claim tax credits, and the advocacy group Work Opportunity Tax Credit Coalition, an alliance of firms that push for tax credits so they can hire “chronically unemployed workers.” Tribes that have lobbied for the credit in the past include the Agua Caliente Band of Cahuilla Indians, the Shakopee Mdewakanton Sioux Community and Chickasaw Nation. Agri Beef Co., Oklahoma Gas & Electric Energy Corp, the Westmoreland Coal Company and the Jicarilla Apache Nation have listed the accelerated depreciation provision on their lobbying filings.
Congress first passed the Indian employment credit and accelerated depreciation provisions in 1993 as part of the Omnibus Reconciliation Act; they were supposed to expire in 2003. Congress has since extended these two breaks every or every other year, normally retroactively, leaving businesses unclear about whether the benefits will last. The Bipartisan Budget Act of 2018 allowed these provisions to retroactively cover businesses through 2017.
“It isn’t a huge lobbying effort because it’s a boulder that has already rolled up the hill, you just have to keep it there,” said John Dossett, general counsel for the National Congress of American Indians. “You’re not advocating for something new or different. They are already known and understood. The real push is to make them permanent.” Dossett has not heard of anyone opposing the tribal tax extenders.
The U.S. Senate Committee on Indian Affairs pays particular attention to these issues. Chairman John Hoeven, R-N.D., Sen. Lisa Murkowski, R-Alaska and Sen. Heidi Heitkamp, D-N.D., sponsored the Tribal Economic Assistance Act in October of 2017, which would make these provisions permanent tax law. The bill has not made it into committee. Federal lawmakers from Oklahoma, Republican Sen. James Inhofe, Democratic Rep. Dan Boren and Republican Rep. John Sullivan, have all sponsored similar legislation in the past.
Top lobbyists for Native American tribes include Kathleen Nilles of Holland & Knight, who lobbies for the National Congress of American Indians and Robert Odawi Porter of Odawi Law PLLC. John Dossett also educates the public as general counsel of the NCAI.
The Agua Caliente Band of Cahuilla Indians historically contributed to party committees such as the Democratic Congressional Campaign Committee, National Republican Congressional Committee and state Democratic parties, and gave $1,000 to Sen. Heitkamp in 2013. The Shakopee Mdewakanton Sioux Community donated a few thousand to members of the Indian Affairs Committee, such as the chairman, Sen. Hoeven. The Chickasaw Nation gives heavily to both parties, and the Jicarilla Apache Nation writes a handful of thousand dollar checks each year to parties and members of the committee.
Glenda Bryant, the co-owner of One Stop Market, has taken advantage of the Indian employment tax credit since her Belcourt, North Dakota, grocery shop and gas station opened in 1993 off Highway 5. She employs around 60 people, most of them Chippewa Indians living on the nearby Turtle Mountain Reservation.
“We’re able to offer our employees a better wage because of the tax credit, which makes our business more marketable,” Bryant said. “We’ve kept some of our employees since we’ve opened. But not knowing if it will be offered year to year can affect our process of hiring and the wage we’re going to be offering.”
The Indian employment tax credit is estimated to cost the Treasury $57 million from 2018 to 2027, according to a Joint Committee on Taxation analysis. The accelerated depreciation benefit is estimated to cost $112 million over the same timeframe.
A tax break for coal mine operators on Native lands is an economic boost to both tribes and companies
Native American tribal leaders say one of the tax breaks extended by Congress in the budget deal is vital to preserving coal mining operations on their land.
The so-called "Indian coal" tax credit, which retroactively applies through 2017, subsidizes coal companies that operate inside Native American reservations — such as Westmoreland Coal Company, which runs the Absaloka Mine in Montana, and Peabody Energy Inc., which runs the Kayenta Mine in Arizona.
Native American tribes, in turn, get indirect benefits from the tax breaks — in the form of millions of dollars in taxes and royalties that they collect from coal companies, as well as hundreds of jobs that the mines create.
The tax credit was first created by the Energy Policy Act of 2005. But it expired in 2013 — only to be resurrected repeatedly as one of the "tax extenders."
Kenneth Brien, the Crow Tribe's director of energy and mineral development, said the tax credit has been a key ingredient in persuading Westmoreland to stay in the remote southeast corner of Montana to operate the Absaloka Mine.
"The tax credit is important to us because, unlike other [Native American tribes] that can turn to things like casinos, coal is one of the few resources that we have to rely on," Brien said.
According to the Joint Committee on Taxation, the price tag for the tax credit will amount to an estimated $34 million in the next five years.
Westmoreland has been lobbying in favor of the tax credit. The company reported paying lobbyists $30,000 last year to advocate on an unsuccessful measure co-sponsored by Montana’s senators, Republican Steve Daines and Democrat Jon Tester, to make it permanent, as well as other issues. The Colorado-based company, which operates 11 other mines on non-Indian lands across the U.S. and Canada, did not respond to the Center for Public Integrity's request for comment.
Since 2013, the Crow Tribe has spent more than $1.2 million for its lobbying efforts in Congress, including its advocacy for various bills to preserve the tax credit. But the tribe did not lobby at all in 2017, according to federal disclosure filings.
The tax credit has also been supported by Cloud Peak Energy, which currently doesn’t operate inside Native American reservations. In 2015 and 2016, the Wyoming-based company, which has been in talks with the Crow Tribe to operate on its land, joined Peabody in support of another bill introduced by Daines and Tester.
Daines’ office did not respond to the request for comment.
In a statement, Tester, who pushed for the tax credit to be included in the new budget deal, said it "helps create good jobs, spur investment and increase self-determination in Indian country."
Tester added, "A retroactive one-year extension is a start, but I will keep working to make this tax credit permanent."
A tax credit for biodiesel producers could cost the Treasury about $3.25 billion
It’s not that biodiesel companies don’t appreciate getting another 12 months of their perpetually expiring tax credit. But here’s the sticking point: Because the extension is only for 2017 — granted more than a month after the year ended — they can’t use the tax break to kickstart new projects unless Congress provides a time machine to go along with it.
That frustration is shared by other industries receiving a one-year retroactive extension of tax credits in February’s budget package. That’s not good tax policy, both supporters and critics of these incentives say.
“It doesn’t let people plan,” said Scott Hedderich, executive director of corporate affairs for Renewable Energy Group, an Iowa-based producer of biodiesel, a fuel made from plants or animal fats rather than petroleum. “Private capital likes consistency.”
The credit’s champions in Congress are Sen. Chuck Grassley, R-Iowa — also a key backer of ethanol, another biofuel — and Sen. Maria Cantwell, D-Wash. Iowa is a major biodiesel producer, and Cantwell sees her state as a potential hub for aviation biofuel. Grassley was a top recipient of spending from alternative-energy and agricultural-services interests in the 2016 election cycle; that includes companies in the supply chain.
Congress made some temporary credits — “tax extenders” — permanent in 2015, but biodiesel was among the more than 30 that did not make the cut. The nonpartisan Joint Committee on Taxation believes the $1-per-gallon biodiesel incentive will be the most expensive of the one-year extensions, estimating its cost to the Treasury at $3.25 billion.
“Is it endangered? Yeah. But I think they’re all endangered,” said Larry H. Schafer with government-relations firm Playmaker Strategies, who lobbied for the biodiesel credit on behalf of several clients last year, among them biodiesel producers BIOX Corp. and Owensboro Grain Co., according to federal records. “It’s really kind of a scary time for everybody, not really knowing … what’s going to happen to all of these tax extenders.”
Biodiesel plants are spread across the country, often in economically challenged rural areas that can ill afford facility closures. A Senate bill to extend the credit through 2020, introduced by Grassley last April, garnered 16 co-sponsors. A House version of the bill, introduced by Rep. Kristi Noem, R-S.D., attracted 18 co-sponsors. Kurt Kovarik, vice president of federal affairs at the National Biodiesel Board and a former Grassley aide, sees that enthusiasm — and a general support for tax extenders in the Senate — as a reason for the industry to hope another extension will come.
The biodiesel credit has a variety of groups in its corner. Trade organizations that asked congressional leaders for a multi-year extension in December range from the American Trucking Associations to the National Association of Convenience Stores to the Petroleum Marketers Association of America.
Opponents include Freedom Partners and Americans for Prosperity, both part of the libertarian-leaning Koch brothers’ political network. Never mind that the Kochs’ holdings include a biodiesel operation: When those groups wrote to Senate Finance Committee Chairman Orrin Hatch in November, they argued against the biodiesel credit and other extenders as “nothing more than corporate welfare for special interests.”
Johnson & Johnson, Coca-Cola are among companies getting a 2017 tax break for operating in Puerto Rico
A special tweak to Section 199 of the Internal Revenue Code of 1986 gives U.S. companies operating in Puerto Rico a nine percent deduction of taxable income earned from manufacturing and other activities, like engineering or architecture. It lowers the top effective tax rate on manufacturing income from 35 to 32 percent through 2017.
Johnson and Johnson Services Inc, pharmaceutical giant Amgen, Coca-Cola, which has about 400 workers on the island, and medical device company Medtronic, which employs more than 5,000 people in Puerto Rico, all reported lobbying on a variety of matters, including this deduction, in 2017. The Puerto Rico Statehood Council submitted testimony to the Senate Finance committee also recommending extension of the break, and the National Association of Manufacturers has posted blogs arguing why the break should be extended. Amgen and Medtronic declined to comment.
Congress created this deduction for states and D.C. in 2004 under the American Jobs Creation Act, and extended it to include Puerto Rico in 2006 under the Tax Relief and Healthcare Act. This Puerto Rico provision has in turn been extended seven times since. But after 2017, this provision won’t exist for any state or territory: The Tax Cut and Jobs Act eliminated the deduction for U.S. states to help lower the tax rate overall, and the budget bill only extended the provision to apply to Puerto Rico up through the end of 2017.
Puerto Rico Resident Commissioner Jenniffer González-Colón introduced legislation to make this deduction permanent in the past, along with cosponsors Reps. Carlos Curbelo, R-Fla., John Lewis, D-Ga., and Jose Serrano, D-N.Y. Former Georgia congressman and former Health and Human Services Secretary Tom Price also proposed permanently extending the Section 199 benefit. In December, House Ways and Means Committee Chairman Kevin Brady, R-Texas, met with Commissioner González-Colón to discuss ways to boost Puerto Rico’s economy.
Coca-Cola employed Kathleen Black as an internal lobbyist. Brian Burns and Caroline Moody Schellhas, the latter now at Pfizer, represented Johnson & Johnson, John McManus lobbied for Amgen, and Rachel Jones Hensler, Stacey Hughes and Don Nickles lobbied for Medtronic. Rep. Lewis received $79,000 from Coca Cola’s PAC since 1989.
Coca-Cola’s PAC contributed $1,000 to González-Colón’s 2016 campaign. Her predecessor, who also supported making Section 199 permanent, Rep. Pedro Pierluisi, received $18,000 from Amgen’s PAC and $27,100 from the president and CEO of Coca-Cola Puerto Rico Bottlers, Alberto de la Cruz, over the course of his career from 2007 to 2016.
“If the … Puerto Rico provision were allowed to expire … this would create a clear disincentive for existing and new businesses to conduct manufacturing operations in Puerto Rico,” wrote the Coca-Cola Company in September 2016 testimony to a Puerto Rico congressional task force. “It would be highly unusual for the Internal Revenue Code to explicitly disincentivize investment anywhere in the United States and this Task Force should act to level the playing field for manufacturing in Puerto Rico.”
A June 2006 Joint Committee on Taxation analysis mentioned opponents argue that U.S. companies based in Puerto Rico could theoretically organize their business structures to maximize benefits in a way that U.S. businesses only operating domestically could not. Though proponents say this is a hypothetical argument they have not seen when lobbying.
The deduction is estimated to cost the Treasury $67 million in 2018, according to a Joint Committee on Taxation analysis.
Rum profits are key to rebuilding hurricane-battered Puerto Rico and the U.S. Virgin Islands
The spirit of choice for both pirates and spring break revelers has its own tax extender — and the annual wrangling for its renewal is enough to make anyone crave a drink.
At stake is millions of dollars in proceeds from an excise tax on rum produced in U.S. territories, a provision with a complex 100-year history.
Rum manufactured in either Puerto Rico or the U.S. Virgin Islands and sold on the mainland is subject to a federal tax, currently $13.50 per proof gallon. Most of the money is by law returned to the governments of the territories where the rum is manufactured, and since the 1990s, Congress has passed temporary measures — often one-year extensions — to ensure nearly all of the remaining dollars brought in via the tax also go back to Puerto Rico and the U.S. Virgin Islands.
The governments of Puerto Rico and the U.S. Virgin Islands want Congress to make that permanent.
The leaders of both of the hurricane-battered territories say they rely heavily on the money, especially given escalating needs in the wake of 2017’s storms. There are no restrictions on how the territories’ governments can spend the money, and both use it for a variety of purposes, including general government expenditures and repaying debt.
In addition, some of the dollars flow to benefit rum companies, including giants Diageo, Bacardi and Cruzan, all of whom reported lobbying on the provision last year. Some of those payments have been controversial.
Steve Ellis, vice president of Taxpayers for Common Sense, a watchdog group, said the group objects to the temporary nature of the extender because tax policy should be predictable, and objects to the proceeds benefiting rum companies.
“We wouldn’t necessarily oppose making that permanent as long as you make sure it won’t go lining the pockets of Diageo or Bacardi or Cruzan,” he said.
Rep. Clay Higgins, R-La., last year introduced a bill to end the “cover over,” as the provision is known, arguing the practice disadvantages rum producers on the mainland.
“This creates an unlevel and clearly unfair playing field, which disrupts innovation and prosperity,” Higgins said in a press release about the legislation.
His bill appears to have stalled in the House Ways and Means Committee.
“Large portions goes to paying the rum companies as well as paying our debt, so all that money doesn’t come in to our Treasury, but it certainly comes into the economy, and it’s an important crucial piece of our liquidity and our economy,” said Lonnie Soury, a spokesman for the U.S. Virgin Islands Public Finance Authority.
According to estimates by the Joint Committee on Taxation, the extension of the temporary portion of the rum cover over will cost $676 million from 2018 through 2022.
The most recent approval by Congress covers a five-year period, retroactively including 2017 and running through the end of 2021.
In 2016, a bipartisan congressional task force on economic growth in Puerto Rico recommended that Congress make the payment of the full amount of the rum cover over permanent. The leader of the task force was none other than Sen. Orrin Hatch, R-Utah. Hatch, the chair of the Senate Finance Committee, ultimately proposed this year’s extenders bill.
“This is a positive first step for the island of Puerto Rico and we hope that this provision will eventually be extended indefinitely as this tax provision is estimated to provide an additional $1 billion in revenue through the date of this extension,” said Carlos Mercader, executive director of the Puerto Rico Federal Affairs Administration, in a statement emailed via a spokesman. “This revenue will be vital for the government to continue to provide necessary services to the U.S. citizens living in Puerto Rico.”
The government of the U.S. Virgin Islands, the government of Puerto Rico, and the rum companies all reported lobbying Congress over the extension of the rum cover over provision, among many other issues.
Diageo spent roughly $2.6 million lobbying the federal government in 2017. Bacardi spent $590,000. Cruzan’s corporate parent, Beam Suntory, spent $1.7 million. All three companies did not respond to requests for comment.
Lobbyists included Peter Hiebert of law firm Winston & Strawn, who is counsel to the U.S. Virgin Islands. Former Rep. Jim McCrery, a Louisiana Republican who was at one point ranking member on the House Ways and Means Committee, was among those lobbying for Beam Suntory, federal disclosures show.
Some clean-energy producers were left out of a 2015 tax credit. A new extension aims to fix that
In December 2015, Congress gave a boost to America’s solar-power industry, extending an investment tax credit that would have dropped from 30 percent to 10 percent at the end of 2016. The congressional action, included in an omnibus appropriations bill, keeps the credit at 30 percent through 2019 and, after that, shaves it gradually to 10 percent by 2022.
Here’s how it works: Say you began a $100 million solar project this year and finished it in 2020. Once the project was completed, you’d be able to deduct $30 million from your federal tax liability. If your company would have owed $40 million in taxes in 2020 without the credit, it would owe only $10 million with it.
The credit is “the premier method by which the federal government promotes the development of solar power in the United States,” said Christopher Mansour, vice president of federal affairs for the Solar Energy Industries Association. It helped trigger $23 billion in solar investment in 2016, the most recent year for which the trade group has data, Mansour said. Large-scale wind-energy producers also benefited from the 2015 bill, winning an extension of a production tax credit.
But some clean-energy producers — so-called orphans — were left out. Their day came Feb. 9, when Congress extended investment tax credits through 2021 for:
· Fuel cells — devices that generate electricity through anelectrochemical reaction instead of combustion
· Distributed wind power — small wind turbines used by homeownersand businesses to offset on-site energy consumption, and
· Combined heat and power systems, which produce electricity andthermal energy from a single source
Senate records show that two trade groups have lobbied for the tax extenders, among other issues, in recent years: The Distributed Wind Energy Association, which reported spending $250,000 from 2015 through 2017, and the Fuel Cell and Hydrogen Energy Association, which reported spending $120,000. No records were found for the CHP Association, the trade group for the combined heat and power industry.
Both the distributed-wind and the fuel-cell groups lauded Congress for its blessing of extenders this month. In a statement to the Center for Public Integrity, the wind group’s federal policy director, Lloyd Ritter, wrote, “The [investment tax credit] extension is a big shot in the arm for thedistributed wind industry. Parity with solar allows our companies to compete on a level playing field, and grow. Distributed wind's domestic manufacturers and companies across the full value chain will expand and continue to offer farmers, businesses, and communities a top quality environmentally friendly electricity source for their energy needs."
Among the fuel-cell extender’s most enthusiastic proponents in Congress was Rep. John Larson, D-Conn., whose state is a manufacturing hub for the industry. “The reinstatement of the Investment Tax Credit will provide the industry with the certainty and the level playing field it needs to invest and grow,” Larson said in a press release.
Records show the congressman has received $2,500 in the current election cycle from FuelCell Energy Inc., a manufacturer in Danbury, Conn.
The Joint Committee on Taxation estimates that the extension of the three energy tax credits will cost the federal government $956 million in revenue from 2018 through 2022.
A tax credit for investing in low-income areas now includes parts of Puerto Rico
A new provision in the tax overhaul lets certain individuals or corporations that invest in low-income areas known as “opportunity zones” receive benefits such as deferred federal capital gains taxes. A provision of the budget bill passed months later now lets every low-income community census tract in Puerto Rico to be considered an “opportunity zone.”
The Puerto Rico Statehood Council and Empresas Fonalledas, which owns the biggest Caribbean shopping center as well as a variety of other holdings, reported lobbying on the opportunity zones rule in 2017.
The Puerto Rico Statehood Council hired Navigators Global LLC and its lobbyists Cesar Conda, Chris Cox and Josh Finestone, while Empresas Fonalledas used Akin Gump’s Steve Ross, Karen Green, Geoff Verhoff, Jeff Farrow and Ryan Ellis on issues that included opportunity zones.
Empresas Fonalledas’ president and CEO, Jaime Fonalledas Jr., has donated $4,700 to Puerto Rico’s non-voting delegate, Jenniffer González-Colón, at least $4,000 to Puerto Rico’s shadow senator and former commissioner, Carlos Romero-Barcelo, and another $1,500 to former commissioner Pedro Pierluisi since 1998.
The provision originally appeared in the recent tax overhaul, the Tax Cut and Jobs Act, but did not pass the Senate last December. González-Colón, House Ways & Means Chairman Kevin Brady, R-Texas, and House Speaker Paul Ryan, R-Wis., worked to include the measure in the Bipartisan Budget Act, as lawmakers discussed how to help revitalize debt-ridden Puerto Rico in the wake of Hurricane Maria.
“Our office supported Resident Commissioner Jenniffer Gonzalez’ office to include this language in the most recent budget deal,” said Carlos Mercader, executive director of the Puerto Rico Federal Affairs Administration, in a statement. “Throughout the legislative process we held multiple meetings … to promote the Puerto Rican government’s policy objectives. We are hopeful that these provisions will provide incentive for companies to invest in Puerto Rico and thus grow our corporate tax base.” The Federal Affairs Administration did not encounter any opposition to the provision.
The opportunity zones rule is estimated to cost the Treasury $678 million from 2018 to 2022, according to a Joint Committee on Taxation analysis.
Some renewable energy sectors were excluded when tax credits were handed out. Now, they’re in
The Bipartisan Budget Act expanded a credit for spending on residential renewable energy systems like geothermal heat pumps, small wind energy and fuel cell. The law designated a credit of up to 30 percent for purchases made through 2021.
Before the extension, only solar energy systems had been promised the longer-term credit, while the others expired in 2016. Geothermal heating pump manufacturer Enertech Global saw a 47 percent drop in sales last year after the expiration, according to the company’s chief executive officer, Steve Smith. He said he had to cut more than a third of his workforce.
To show how the loss of the tax credit affected his employees, Smith sent a photo of his South Dakota-based manufacturing staff to members of Congress — with each laid-off person whited out.
“I think that hit home with them that those are real people with real families that are now without a job,” Smith said.
The inclusion of the so-called “orphaned technologies” in the residential energy property credit came after a two-year effort led by the Geothermal Exchange Organization, which spent about $740,000 lobbying lawmakers during that period, primarily to achieve tax parity with solar energy systems. Among the lobbyists GEO hired was Heather Podesta, chief executive of Invariant and a well-known figure in Democratic circles. Other groups lobbying for the extension included the National Rural Electric Cooperative Association and the National Association of Home Builders.
The nonpartisan Joint Committee on Taxation estimates the residential energy efficient property credit will cost the Treasury $3.17 billion over 10 years.
A separate credit will apply retroactively to energy-efficient residential purchases such as heat pumps, water boilers and windows purchased in 2017. The estimated loss of revenue for that measure is $542 million. Though various industries that produce qualifying technology have supported the credit, some say it would be more effective if it wasn’t just for purchases already made.
“When it’s only retroactively extended, it doesn’t act as a real incentive, and it causes a lot of confusion in the market,” said Rachel Feinstein, senior manager of government affairs at the Hearth, Patio & Barbecue Association, which has lobbied on the tax credit since 2009.
Another stab at a tax break for building energy-efficient new homes
Advocates had high hopes when Congress passed a tax credit for energy-efficient new homes 12 years ago.
“It was supposed to change how homes are built,” said Steve Baden, executive director of the Residential Energy Services Network, a national standards-making body for building energy efficiency rating systems.
But it didn’t. The incentive was applied in fits and starts, leaving builders guessing whether the credit would actually exist in any given year. Sometimes Congress would extend the lapsed credits. Sometimes it would not. That pattern continued in February, when Congress retroactively applied the credit to homes built in 2017. It did not, however, extend the credit forward to 2018.
A similar tax deduction for energy-efficient commercial buildings was also extended retroactively. It, too, has expired and been extended several times in the past. This means that only the builders who “guessed right” in 2017 get the credits, Baden said. Because of this uncertainty, this “extension does not do much for market transformation,” he said.
“A retroactive extension is not changing anyone’s behavior,” said David Goldstein, energy program co-director at the Natural Resources Defense Council, or NRDC. “We are spending public money and not accomplishing anything.”
On top of that, the benchmarks for the residential credit are so obsolete that they do not incentivize builders to push the envelope. In 2013, those benchmarks were updated to match the 2006 International Energy Conservation Code, which sets minimum requirements for insulating walls and floors, sealing ducts and other building activities.
The Energy Conservation Code was updated in 2015, but the tax credit is still tied to the 2006 standards.
In 2005, fewer than 100 new homes complied with the standards set out in the original legislation, Goldstein said. But roughly 200,000 homes built last year could be eligible for the tax credit, paying builders for what have become standard building practices, Goldstein said. If every eligible builder took the credit, it could cost the Treasury $400 million, he said, though the nonpartisan Joint Committee on Taxation estimates the tally will be just under $300 million.
Those who lobbied for the tax extension include the Manufactured Housing Institute, a national trade organization that represents factory-built homes.
The NRDC, however, opposed the extension. It’s lobbying instead for tax credits that incentivize “bleeding edge” innovations — “technologies so advanced that they would never happen without the tax incentive,” said Goldstein, such as those that lead to a 50 percent reduction in energy costs — for a limited period of time, until other incentivizing mechanisms can take over.
The idea is to raise the bar for “continual improvement,” he said. He can’t think of any lawmakers who oppose policies to improve energy efficiency, but said “just because everybody supports something doesn’t mean you can get legislation passed.”
A retroactive tax credit for certain renewable energy producers — but what about next year?
Facilities using hydropower or certain other non-wind renewable resources to produce electricity secured a one-year, retroactive tax cut to incentivize clean energy use as part of the February budget package.
As a result of the extension, companies that started to build these facilities during 2017will receive credit for up to 2.4 cents per kilowatt-hour of energy produced or a flat credit for 30 percent of their costs. But proponents of the incentive say a retroactive break won’t encourage new people to produce clean energy.
“If you want the tax incentive to have an impact, then it needs to go on the books now so people can see it when they’re considering whether or not to take the action,” said Patricia Wolff, senior director of congressional relations for the American Farm Bureau Federation, which represents farmers’ and ranchers’ interests.
The tax credits, affecting geothermal to biomass energy sources, will cost the Treasury $123 million in fiscal year 2018, a nonpartisan congressional analysis found. Groups from the farm bureau, whose members with livestock can produce energy from animals’ waste, to Covanta, a company that turns solid waste into power, have lobbied on these credits, federal records show.
Covanta paid some big names to advocate for it, including former Sen. Tim Hutchinson, R-Ark., former Rep. Albert Wynn, D-Md., and former Rep. Charles Bass, R-N.H.
Several members of Congress on both sides of the aisle have supported the productionand investment tax credits. Rep. Elise Stefanik, R-N.Y., has introduced legislation that would extend the credits through at least 2020, for example, while others like Sen. Jeff Merkley, D-Ore., and Rep. Jared Polis, D-Colo., have proposed narrower policies. But the retroactive tax credit doesn’t last long enough to satisfy these members’ wishes.
“Tax incentives can be a valuable tool to move our nation closer to a clean energy future,” Merkley told the Center for Public Integrity in an emailed statement. “But if businesses are going to rely on tax incentives to encourage investments in these renewable energy technologies, they need to know that the tax credits aren't going away.”
Carol Werner, executive director of the Environmental and Energy Study Institute, said that the way Congress has set up tax incentives for the renewable energy sources favors some energy resources over others. Credits for wind and solar will be available for multiple years.
Biomass and other energy sources in this retroactively approved credit don’t have the same benefit.
“When you don’t receive anything going forward, that leaves everybody in the lurch. It removes any certainty,” said Werner, whose group advocates for environmentally sustainable policies. “It’s a disservice to sound energy, environmental and climate policy.”
A salad dressing credit? Tax break for Newman’s Own saves company from being sold
With help from a lobbyist who once played guitar for Elvis Presley, Newman’s Own Inc. will no longer be forced by a federal law to sell the company, which would have put in jeopardy millions of dollars of charitable contributions.
Last year, the Newman’s Own Foundation, which distributes profits from Newman’s Own the company to select charities, hired lobbyist Theodore “Ted” Jones to work Congress to include a tax exemption that allows the foundation to remain in control of the company. Jones, who played rhythm guitar with Presley in 1954, had years of experience on the Hill, specifically providing outside legal counsel to Sen. Russell Long, a Louisiana Democrat who was once chairman of the Finance Committee. As part of that work, Jones was involved in a 1969 law that forbids private foundations from owning more than 20 percent of a for-profit business for more than five years. The law was intended to prevent companies from using tax-exempt charitable foundations to shelter business revenue from taxes.
Newman’s Own is famous for its founder, the late actor Paul Newman, whose grinning portrait covers its varied food products such as salsa, salad dressing, candy, frozen pizza and lemonade. Newman’s Own has donated $500 million to charitable causes since its inception in 1982. Through its foundation, the company supports groups working on issues like childhood education, veterans concerns and environmental awareness.
When Newman died in 2008, ownership of the business shifted to his foundation. Under the 1969 tax law, the move would have slammed the foundation with a 200 percent excise tax on 80 percent of the value of Newman’s Own. The tax would have been too costly for the foundation, forcing it to sell the company — a difficult proposition.
“There aren’t many buyers for a company where the brand is associated with giving 100 percent of the profits to charity,” said Bob Forrester, president and CEO of the Newman’s Own Foundation.
In 2009, a year after Newman’s death, Forrester began meeting with members of Congress to ask for relief from the law. From 2012 to 2017, a number of bipartisan bills sponsored by Reps. David Reichert, R-Wash., and Mike Kelly, R-Pa., and Sens. Joseph Lieberman, D-Conn., Robert Menendez, D-N.J., and John Thune, R-S.D., gave the foundation its exemption from IRS taxes. But the waiver runs out in November.
The foundation spent about $655,000 in 2016 and $623,000 in 2017 on lobbying, including on the exemption. In addition to its own lobbyists and Jones, the foundation hired Ernst & Young, according to lobbying records. Richard Blumenthal and Chris Murphy, the two Democratic senators from Connecticut, where the Newman’s Own Foundation is headquartered, wrote to Senate leadership last month, urging them to include the repeal of the penalty tax in the 2018 budget bill. According to the Joint Committee on Taxation, the exemption would have minimal effect on revenues.
Forrester has given thousands of dollars to numerous Democratic and Republican candidates over the years, including $1,000 to Blumenthal in 2010 and $1,000 to Murphy in 2015, according to the Center for Responsive Politics. Forrester has not given to any of the other members of Congress who helped worked to extend tax breaks to the foundation.
The new exemption will apply under a specific set of circumstances. A foundation will have to come to own a for-profit business other than by purchasing it, and all of the business’ net operating income will have to be distributed to the foundation within 120 days of each tax year. The requirements will allow the rare company that donates its profits to charitable causes to continue to do so after the company’s owner dies.
While nothing indicates the Newman’s Own Foundation will use the exemption as a tax shelter, the exemption provides the opportunity for other businesses to possibly use a foundation to shelter income, said Steve Ellis, a vice president at Taxpayers for Common Sense, a nonpartisan budget watchdog group.
“The question is, ‘Are they the exception or are they the rule?’” Ellis said.
Good news for homeowners: Tax credit means they can once again deduct mortgage insurance premiums
Congress has once again extended a tax provision allowing for mortgage insurance premiums to be treated as interest on a loan, making those payments deductible from homeowners’ tax bills for another year.
Mortgage insurance is a tool to make home loans more affordable for lower income borrowers. If a borrower makes a down payment of less than 20 percent of a home's value, they are typically required to carry mortgage insurance, usually paid as a premium on top of monthly mortgage payments. Mortgage insurance is offered by the Federal Housing Authority as well as by private insurers. The break extended by Congress allows for mortgage insurance premiums to be counted as interest, and therefore included in tax deductions. The deduction is phased out for higher income earners starting with those who make $100,000 or more a year.
David Berenbaum of the Homeownership Preservation Foundation said, “especially for low to moderate income, homeownership is a way of joining the middle class and creating wealth.” Extending this tax break for borrowers who also pay insurance premiums “is a helpful step forward,” Berenbaum said. “It’s not clear if this is going to continue, but for many working families this is a welcome relief.”
The mortgage insurance premium deduction was first introduced into the tax code as part of the Tax Relief and Health Care Act of 2006 and was extended as part of the Protecting Americans from Tax Hikes Act in 2015.
The Joint Committee on Taxation estimates the break costs about $1 billion per year, but it helps promote homeownership in lower income brackets. It’s pushed in Washington by homeownership advocates like the Homeownership Preservation Foundation and National Community Reinvestment Coalition, as well as trade groups representing business interests. The U.S. Mortgage Insurers, a trade group which represents mortgage insurers like the Mortgage Guaranty Insurance Corporation and National Mortgage Insurance, has taken the lead in advocating for the tax break in Congress. USMI’s executive director Lindsey Johnson was the Republican staff director and senior policy advisor on the Senate Banking Committee until 2014.
The mortgage insurance tax break is supported by key members of Congress such as Sen. Michael Crapo, R-Idaho, chairman of the Senate Committee on Banking, Housing and Urban Affairs and member of the Senate Finance Committee, which wrote much of the tax extenders legislation. Crapo sponsored legislation to make the mortgage insurance deduction permanent in 2015, but the bill did not advance. Crapo has received $137,550 in campaign contributions from mortgage bankers and brokers since 2009.
Despite the recent legislative inaction, the mortgage insurance premium deduction enjoys the support of most in Congress and doesn’t appear to draw much opposition. “Congress recognizes the importance of housing finance as a cornerstone of our economy and the well-being of communities,” Berenbaum said.
Extension of tax break for fuel cell vehicles benefits a trio of automakers
Hydrogen-powered vehicles are so easy on the environment, emitting no harmful gases, people who buy them deserve a tax break, say the few companies that manufacture them. But not everyone agrees.
Fuel cell vehicles are automobiles that run on hydrogen rather than gasoline, and only three manufacturers currently make them for use in the United States: Honda, Hyundai and Toyota. Congress recently approved the extension of a provision that allows tax credits — or dollar-for-dollar reductions in your tax bill — for people who purchased fuel cell vehicles in 2017.
The credit is $4,000 for a qualified automobile weighing up to 8,500 pounds and more for heavier vehicles. The three manufacturers were among the groups that lobbied Congress to approve the so-called “tax extender,” which has been in use since 2014, when an existing law expired that had allowed tax credits for fuel cell vehicles purchased between 2006 and 2014.
Steve Ellis, vice president of the budget watchdog group Taxpayers for Common Sense, said government shouldn’t pick winners and losers in the technology industry by rewarding a particular advancement, such as hydrogen-powered cars. Also, consumers bought the cars in 2017 without the tax credit in place, so the credit didn’t have a hand in inspiring sales, he said.
“All of us are the ones who are funding these various tax extenders, so to speak, but there are a small group of people and businesses that are actually benefiting,” Ellis said.
Toyota has produced about 3,500 fuel cell vehicles, said Charlie Ing, director of government affairs for Toyota Motor North America. Some are sold to private owners and some are leased.
“I would call this revolutionary technology in the vehicle space,” Ing said. “There’s nothing really ahead of it. The tax credit is designed to accelerate the penetration of these types of advanced technology vehicles into the market, ultimately increasing consumer acceptance.”
Edward B. Cohen, vice president for government and industry relations for Honda North America Inc., says the impact of the credits is minimal, considering.
“We’re not making a lot of money off the tax credit,” Cohen said. “These cars are hugely expensive to market in the early days.”
Manufacturers do benefit because the credits promote the sale of vehicles in California and nine other states where they are required to sell alternative energy automobiles. Those states are moving toward replacing their fleets of gas-powered cars with zero-emission vehicles.
They’re also not as widely used as other alternative-energy cars because there are so few hydrogen filling stations around the country, Cohen said.
Honda has about 100 to 200 fuel cell vehicles on the road in the United States, all available for lease, Cohen said. A lobbyist for Hyundai declined to answer questions about his company’s fuel cell vehicle fleet or its efforts to promote the fuel cell tax extender.
Over the years, a number of members of Congress from both sides of the aisle have helped push for tax incentives for energy efficient vehicles, Ing said. Most recently, Sens. Tom Carper, D-Del., and Jeff Merkley, D-Ore., among others, have voiced their support for extending the tax credit.
Sen. Ron Wyden, D-Ore., introduced the Clean Energy for America Act in May, which would have extended the tax credits for fuel cell vehicles to 2026, but the bill is still in committee.
Wyden’s office did not directly answer questions about the fuel cell motor vehicle tax credit.
The credit extension is expected to cost the Treasury $4 million in 2018, according to the Joint Committee on Taxation’s revenue estimates.
The Wyden for Senate committee received $7,500 from Toyota Motor North America Inc. Political Action Committee in 2015 and 2016 and $1,000 from the PAC in 2017, according to Federal Election Commission filings.
A revived $500 million-a-year tax on the oil industry will continue funding for spill cleanup
What amounts to a $500 million-a-year tax on the petroleum industry to fund oil spill cleanup has been temporarily revived as part of a bipartisan budget deal brokered by Sen. Orrin Hatch, R-Utah.
The provision, which collects 9 cents per barrel on domestic crude oil as well as imported crude and petroleum products, had quietly sunsetted on New Year’s Day — disappointing environmentalists who pointed to the lapse as yet another industry tax break granted by the business-friendly Trump administration. Under Hatch’s bill, the tax will be extended by one year, expiring again on January 1, 2019.
The tax is the largest contributor by far to the Oil Spill Liability Trust Fund, which finances oil spill response by the U.S. Coast Guard. By law, up to $1 billion can be spent from the fund on a single incident. As of late last year, the trust had a balance of nearly $6 billion.
Though it has often drawn lackluster GOP support, both Republican senators from Alaska —Lisa Murkowski and Dan Sullivan — were vocal supporters of reinstating the provision, calling it industry’s “cost of doing business.” Sans tax, the trust is reliant on inconsistent funding to finance cleanups, like from federal pollution fines.
First created in 1986, the trust fund didn’t gain steam until the tax was approved by Congress in 1990 on the heels of the Exxon Valdez disaster, which sent 10.8 million gallons of crude into Alaska’s ecologically sensitive Prince William Sound. The spill remains the second largest of its type in the U.S., eclipsed only by 2010’s Deepwater Horizon explosion in the the Gulf of Mexico, a spill that was cleaned up using the trust.
Throughout the years, the tax has been on shaky ground. The fund languished for a decadeunder Republican-controlled Congresses, starting in 1995 when the tax was allowed to expire. By 2005, the tax was revived in a bipartisan budget deal. Though the fund is supposed to be used as a safety net in the event companies are unwilling to pay for a spill or a responsible party cannot be found, a 2015 review by the Government Accountability Office found that the Coast Guard could not collect the vast majority of the cleanup costs from the companies responsible, leaving the fund to pick up the slack.
Within months of the 2010 Deepwater disaster, the head of the American PetroleumInstitute — Washington’s premier oil and gas lobby group — warned Congress against raising companies’ liability limits for oil spills, saying it would “threaten the viability of offshore operations and could significantly reduce U.S. domestic oil and natural gas production, cost jobs and harm U.S. energy security.” Murkowski agreed at the time, blocking the measure from a vote. Big producers including BP, ExxonMobil, Shell and Anadarko spent millions on lobbying as part of a blitz to prevent a federal clampdown on drilling. Trade associations have splintered on their approach with the oil spill tax. While the American Petroleum Institute opposed reviving the measure in January, the National Ocean Industries Association — which works closely with API on offshore energy issues — proposed congressional changes to how the fund is financed, according to the Washington Post.
Taxpayers can recoup 50 cents a gallon on fuels like propane and natural gas bought or sold last year
A tax credit benefiting the alternative fuel transportation sector was among the provisions included in February’s bipartisan budget deal — a break that will be retroactively applied for 2017.
The alternative fuel excise tax credit, also known as the AFTC, will allow taxpayers to recoup 50 cents a gallon on a variety of fuels like propane and natural gas purchased or sold for motor vehicle use last year. Filers will be able to apply for the refund sometime in March. The one-year extension is projected to cost $555 million in fiscal year 2018.
The credit has existed in some form since 2006. It was last revived for a two-year periodthat ended on December 31, 2016, after another bipartisan budget deal. In addition to natural gas and propane, the tax credit covers fuels like liquefied coal and biomethane. What constitutes a motor vehicle is not explicitly defined; among the vehicles eligible for the credit are construction forklifts, according to some tax advisers.
Applauding the decision to reinstate the credit: NGVAmerica, a trade group that lobbies onbehalf of the natural gas and biofuel transportation industry. President Daniel Gage pointed tocongressional approval for the refund as proof of “how important clean technology natural gas vehicles are to growing our economy, improving our air quality, and enhancing our energy security while reducing our carbon footprint.”
Together with the National Propane Gas Association and scores of other organizations, NGVAmerica urged Congress in mid-December to institute a two- to five-year reinstatement of the credit as a way to “bring significant environmental benefits and enhance our energyindependence.” According to the Center for Responsive Politics, the National Propane Gas Association donated more than $162,000 to federal candidates in 2016, with nearly 90 percent of the contributions going to Republicans. That same year, NGVAmerica spent $32,000 to lobby the federal government on budget, energy and tax issues.
The credit has been a boon to merchants like American Natural Gas, a manufacturer andoperator of compressed natural gas (CNG) stations, which service both the consumer and commercial and vehicle markets. The president of ANG, Drew West, invited Rep. Paul Tonko, D-N.Y., to the company’s headquarters in Saratoga Springs, New York, last year to try to convince the lawmaker to support efforts to make the credit a permanent fixture of the federal tax code.
Industry figures like West have sought to place alternative fuels like natural gas on par with renewable sources like solar and wind. Though natural gas is typically cleaner-burning than traditional gasoline, it is a fossil fuel and does give off air pollution.
Entertainment industry sells deduction as a way to stop production going abroad
The American Jobs Creation Act of 2004 allowed production companies to immediately deduct up to $15 million of their expenses for certain movies and television shows. Congress passed the act hoping to counteract lower production costs and juicy incentives offered in other countries, but the legislation expired in 2008.
Since then, the measure has been renewed annually as part of a package of so-called “tax extenders,” and theater productions were added to the version approved in 2016. The same thing happened this year in the form of the recently passed Bipartisan Budget Act of 2018, which extended the benefit to film, television and theater production expenses incurred in 2017.
Allowing production companies to deduct up to $15 million in the tax year the expenses were incurred accelerates cost recovery by a year, depending on how much lag time there is between when the movie or show is produced and when it starts earning income.
Not everyone believes production companies would take their projects overseas. Steve Ellis, vice president of the budget watchdog group Taxpayers for Common Sense, said film, television and theater productions would occur regardless of a tax incentive.
“The people who are backing these types of endeavors are generally wealthy individuals,” Ellis said. “They’re doing it to make money. That’s what their interest is.”
Some of the country’s largest media companies and associations pushed for the deduction, including Discovery Communications, the Motion Picture Association of America, Comcast Corp., Disney Worldwide Services Inc., Time Warner, the National Cable and Telecommunications Association and CBS Corp., according to federal lobbying disclosures.
Except Comcast, none of the companies responded to requests for comment. Comcast responded but declined to answer questions, referring a reporter to the MPAA.
Patrick Kilcur, MPAA’s vice president of government affairs, said the incentive was “designed to stem the flow of runaway productions to foreign countries that were offering — and continue to offer — generous tax breaks to lure away American productions.”
Kilcur said support for the legislation was bipartisan, but he declined to discuss who specifically in Congress helped push through the extender for the entertainment industry.
In June 2017, a bipartisan group of senators led by Sen. Roy Blunt, R-Mo., introduced the “Lift Investment in Film, Television, and Theater Act,” or the LIFTT Act, which would have permanently extended the tax benefits for certain productions. The bill remains in committee.
A measure introduced in the House of Representatives in May 2017, the “Facilitating Investments in Local Markets Act,” or FILM Act of 2017, would have extended the benefit through 2018, but that bill also remains in committee. It was introduced by a group led by Rep. Doug Collins, R-Ga.
Neither Blunt nor Collins responded to requests for comment placed with their communications staffs.
The Friends of Roy Blunt campaign committee received several high-dollar contributions in 2015 and 2016 from organizations lobbying for the entertainment incentive, according to Federal Elections Commission filings: $4,500 from the Motion Picture Association of America Inc. Political Action Committee; $10,000 from Comcast Corp. & NBCUniversal Political Action Committee - Federal; $7,500 from the Walt Disney Productions Employees PAC; $5,000 from the Time Warner Inc. PAC, $7,500 from the Time Warner Cable Inc. Federal PAC; $10,000 from the National Cable and Telecommunications Association PAC; and $5,000 from the CBS Corp. PAC.
Likewise, Collins received several contributions from the industry in 2015 and 2016: $4,000 from the Motion Picture Association of America Inc. PAC; $6,000 from the Comcast Corp. & NBCUniversal PAC - Federal; $1,000 from the Walt Disney Productions Employees PAC; $4,000 from the Time Warner Inc. PAC; $2,500 from the Time Warner Cable Inc. Federal PAC; and $10,000 from the National Cable and Telecommunications Association PAC.
Republic Consulting LLC and Capitol Tax Partners LLP were among the companies hired to lobby for the tax extender, filings show. Neither firm responded to multiple requests for comment.
The measure is projected to cost the Treasury $1.3 billion in 2018, according to the Joint Committee on Taxation.
An unusual alliance leads to continued mortgage relief to distressed homeowners
For the 10 years since the financial crisis, the federal government has given financial relief to millions of Americans who face mortgages they can’t pay and a home they can’t sell because the houses were worth less than the original loan.
Thanks to an unusual alliance of consumer advocates and the powerful banking industry, homeowners got an extension on that relief as part of the recently-passed budget bill.
Since 2007, struggling borrowers hoping to avoid foreclosure worked out deals with lenders that lowered their mortgage debt, which in turned lowered their monthly mortgage payment or allowed the homeowner to sell the house for a smaller loss without the credit damage associated with a foreclosure.
The IRS previously considered this forgiven debt as taxable income, which meant many borrowers, while avoiding foreclosure, were still hit with a hefty tax on so-called “phantom income,” money that never reached their bank account. President George W. Bush signed the Mortgage Forgiveness Debt Relief Act of 2007, which exempted the forgiven debt from taxes for three years, and the exemption has been available at least retroactively every year since.
Almost 10 years after the foreclosure crisis, homeowners still struggle to make steep mortgage payments in communities where home prices have yet to recover. Congress again retroactively extended the tax exemption in the 2018 budget act, allowing borrowers who had debt forgiven in 2017 to avoid being taxed on it.
Alys Cohen, a staff attorney at the National Consumer Law Center, said “struggling homeowners often need debt forgiveness in order to find a manageable payment plan, which usually also benefits investors.” Extending this break “makes sure that is still manageable even when the tax bill comes.”
The Joint Committee on Taxation estimates extending the break will cost $2.4 billion in lost tax revenue for 2018. But the perk remains popular, with support from consumer advocates and the financial industry alike. The National Association of Realtors and the Mortgage Bankers Association lobbied in support of the extension or similar legislation. The National Community Reinvestment Coalition, a nonprofit group that advocates for fairness in banking, housing and business, also lobbied in favor of the extension.
At the center of the tax forgiveness concept is Senate Finance Committee Chairman Orrin Hatch, R-Utah, who proposed a bill to exempt certain kinds of forgiven debt from taxes in 2000. That measure didn’t pass until the early days of the financial crisis. By 2007, refinances were more common and President Bush signed legislation codifying the tax break for three years that was introduced in the House by Rep. Charles Rangel, D-N.Y., and 25 bipartisan cosponsors.
The tax break was set to expire in 2010 but was extended through 2012 by the Emergency Economic Stabilization Act of 2008 and through 2014 by the American Taxpayer Relief Act of 2012. The break has been extended through the budget process on an annual basis every year since, but legislation to extend the break has been proposed alternatively by Hatch and Sens. Debbie Stabenow, D-Mich., and Dean Heller, R-Nev. The senators received, respectively, over $7 million, $4.6 million and $3.8 million from the finance, insurance and real estate sector over the course of their careers, according to the Center for Responsive Politics.
Some advocates who represent borrowers struggling with mortgage payments say the extension should be applied in advance, not retroactively such as this one, so borrowers know ahead of time whether forgiven debt will be taxed at the end of the year.
The year-to-year, retroactive extension doesn’t give many homeowners facing economic hardship time to weigh the tax consequences of working out a deal with a lender to modify their loan with accepting foreclosure, said private foreclosure defense lawyer Richard Alembik in Atlanta, Georgia.
A controversial tax incentive for racehorse owners is back on track
Under a provision of the tax extender bill, the cost of purchasing a racehorse can be depreciated over three years, regardless of when it begins training. Without the tax extender in place, racehorses placed into service before the age of two were depreciated over seven years.
The owners of racehorses directly benefit from the provision because a faster depreciation schedule means they can claim higher expenses early on and lower their short-term taxable income. Racing advocates say the public at large also reaps rewards because horse racing events are more affordable and accessible.
“The three-year life is valuable to racehorse owners and racehorse partnerships as it better aligns deductions with corresponding income opportunities on an annual basis,” said Alex Waldrop, president and CEO of the National Thoroughbred Racing Association.
But Steve Ellis, vice president of the budget watchdog group Taxpayers for Common Sense, said this provision doesn’t take into account all the income a racehorse earns for its owner after it stops racing and starts breeding. And, like most other tax extenders, this one benefits only a small group of super-wealthy Americans at the expense of everyone, Ellis said.
The seven-year depreciation period for racehorses was in effect until the end of 2008, but the farm bill that passed that year put three-year depreciation into effect for all racehorses, Waldrop said. Since the farm bill expired in 2013, tax extenders have been used annually to maintain the three-year depreciation schedule. The provision in the recent budget bill is retroactive to 2017 only.
Rep. Garland “Andy” Barr, R-Ky., introduced the Race Horse Cost Recovery Act of 2017 that would have permanently extended the three-year recovery period to all racehorses. It was referred to the House Committee on Ways and Means, but it hasn’t had a hearing.
Barr, who represents a region where horse racing is a major part of the local economy, has received $5,000 in campaign contributions each year for the past few years from the National Thoroughbred Racing Association Political Action Committee, according to data from the Federal Election Commission. Barr’s office did not respond to a request for comment.
The racing association enlisted lobbyists from the Alpine Group Inc., and Davis & Harman LLP to push for the tax extender, according to federal lobbying disclosures. The American Horse Council also hired Davis & Harman. Representatives from the Alpine Group and Davis & Harman did not return calls seeking comment. The American Horse Council declined to comment on the record.
Waldrop said horse racing is an expensive enterprise, from buying the horses to training them, so the extender makes the sport more accessible.
“We have an owner shortage,” Waldrop said. “If we don’t have owners, we don’t have horses to race. If we don’t have horses to race, we don’t have a business.”
The Joint Committee on Taxation estimates the extension will cost the Treasury $37 million in 2018.
Tax credit rewards utilities for selling transmission systems to private companies
This tax break, which encourages utilities to sell their electrical transmission systems to independent companies, represents deep-in-the-weeds energy policy that appears to confound even some of the Washington-based associations that represent electric utilities.
In the early 2000s, during the George W. Bush administration, the Federal Energy Regulatory Commission wanted to spur the sale of transmission systems — the network of wires and stations that move electricity from power companies to homes and businesses — to independent firms that would focus solely on transmission. The idea: These companies would theoretically invest in the systems to make them more reliable and tie in renewable generating systems such as solar and wind. Utilities, then, could invest in power generation, “including wind facilities and other renewable resource facilities,” according to ITC Holdings, which operates the International Transmission Co., one of the largest owners of transmission networks in the nation.
“As you see the mass development of renewable energy, especially in spaces where you know it needs to be backboned in [to the grid], these [transmission] companies provide that bridge and gateway to help the electrons get to the population,” Eric Grey, senior director of government relations for the Edison Electric Institute, said in an interview. EEI represents electric utilities.
The tax liability for selling the transmission systems, however, kept many utilities from selling their networks because the huge systems were fully depreciated and any gain on the sale, likely hefty, would be taxed in just one year.
By spreading the tax on such sales over an eight-year period, selling transmission systems might be more financially palatable to utilities — in theory. The special tax treatment was first enacted in the American Jobs Creation Act of 2004, and then extended in 2005, 2008 and 2010, expiring in December 2013. The 2018 budget act allows utilities to take advantage of the tax break for sales in 2017. The tax break results in no loss of federal tax revenue, according to the Joint Committee on Taxation, because the utilities will pay the taxes in later years.
The two largest transmission companies that might benefit from the tax extension by being able to buy utilities’ networks are American Transmission Co., based in Waukesha, Wisconsin, and the International Transmission Co., part of ITC Holdings, based in Plymouth, Michigan, according to the Edison Electric Institute. Neither company reported spending money lobbying Congress in 2017 on this tax issue.
The political action committee operated by ITC Holdings has given $19,000 to Rep. Mike Bishop, a Republican representing the district west of Detroit where ITC Holdings is based. Bishop, a member of the Ways and Means Committee, received the most of any member of Congress from ITC since 2014, the year Bishop was first elected to Congress. American Transmission doesn’t operate a PAC.
Whether the tax extender succeeds in encouraging the sale of transmission systems isn’t certain. Up until the latest tax extension, few transmission assets had been sold, according to the ITC. But that may be the result of the length of time needed to negotiate the sale of the networks and the burden securing regulatory approval.
Congress spares a higher education deduction for ‘middle class’ earners
With so many families struggling to afford college, it’s hard for members of Congress to justify wiping out tax breaks related to the cost of higher education. That pressure seems to have motivated legislators to temporarily spare — at least for 2017 — a higher-education tax break that was scheduled to die.
The so-called Above-the-Line Deduction for Higher Education Expenses was created in 2001 as an option to help middle-class Americans worried about college affordability. Also known as the Higher Education Deduction, the benefit isn’t permanent. Legislators have managed to keep it alive over the years through repeated annual reprieves. But it’s scheduled, once again, to sunset for the 2018 tax year.
“We were surprised — and pleased — that the deduction was not eliminated,” said Stephen Bloom, director of government relations for the American Council on Education. The deduction adds up to an estimated $357 million in lost tax revenue, according to the Joint Committee on Taxation. Congress could have decided to end the deduction. But that relatively small amount of revenue wouldn’t have done much to reduce the massive deficit and it would have upset the students and parents who take the deduction.
About 1.67 million tax filers claimed the above-the-line deduction in 2014, according to the latest Internal Revenue Service figures available. That’s dwarfed by the 12 million tax filers who that same year claimed other types of college benefits — American Opportunity tax credits for undergraduates only that year, or Lifetime Learning credits that are open to undergraduates or grad students. But the Above-the-Line deduction still matters to those who use it.
Usually, college tax experts say, it’s graduate students who take the deduction. Tax credits are usually more generous, but sometimes the deduction is the only or best option. Unlike credits, which reduce tax liability dollar-for-dollar, the above-the-line deduction comes straight off a filer’s adjusted gross income, lowering it further. That’s better for higher earners. The maximum deduction is $4,000 for individuals whose annual adjusted gross income is no greater than $65,000 or $130,000 if filing a joint return; the maximum deduction is $2,000 for individuals whose adjusted gross income is no greater than $80,000 or $160,000 if a joint return. Filers can’t double dip by claiming credits and deductions.
Steve Ellis, vice president for Taxpayers for Common Sense, said the above-the-line deduction is part of a “crazy quilt” of higher-education provisions families struggle to understand and choose from. He said that overall, current provisions are a disincentive to colleges keeping costs down. He compared the effect of the breaks to home mortgage interest deductions, which are “baked” into a home’s value and benefit builders and realtors rather than homeowners. “If you apply that same thing over towards education, where we’ve seen expenses growing much more rapidly than inflation, it benefits the colleges,” Ellis said of the deduction. “It’s one of those things where they can say the cost increase is not going to be as harmful to you because you have this ability to deduct.”
When Congress was debating tax reform last year, graduate students mobilized to save a variety of other higher-education tax breaks Republicans in the House of Representatives had proposed eliminating.
Samantha Hernandez, legislative director for the National Association of Graduate-Professional Students, said students were taken aback when Republican lawmakers they lobbied last year assured the students not to worry. She said that GOP members told them that the final version of the budget bill would spare breaks that individual students counted on. Hernandez’s group was mainly concerned about provisions making graduate students’ stipends taxable income. But students raised general concerns about other provisions that were at risk. “They were apologetic about that right off the bat,” Hernandez said of the legislators.
Billion-dollar companies don’t have to pay extra tax to satisfy one-time accounting gimmick
This provision doesn’t extend a tax favor, but repeals the possibility of what was on the books as a one-time tax increase.
In 2015, Congress passed the Tax Preferences Extension Act, which reauthorized a law that created programs aimed to strengthen U.S. ties with sub-Saharan Africa and the Caribbean. President Bill Clinton supported the legislation “as a way to boost growth and bolster democratic ideals across the continent” and to “strengthen the U.S. economy by opening markets with ‘hundreds of millions of potential consumers,’” according to the Council on Foreign Relations.
Congress included deep in the tax preferences act a short provision that required companies with more than $1 billion in assets to pay a one-time, 8-percent increase in their estimated taxes for the third quarter of 2020. Presumably the increase would not be assessed for future years, but it is likely companies asked Congress to repeal any chance the increase would be, said Steve Ellis, a vice president at Taxpayers for Common Sense, a nonpartisan watchdog group in Washington, D.C.
The provision in the budget bill isn’t controversial. While the future payment would cost companies almost $3.355 billion in extra taxes paid in 2020, they would pay that exact same amount in fewer taxes in 2021, according to the Joint Committee Taxation. The provision was scored revenue neutral by the Joint Committee on Taxation.
Despite the one-time tax increase, and likely because it was revenue neutral, business groups such as the U.S. Chamber of Commerce, supported the tax preferences act.
Such maneuvers, especially if they occur at the end of a five-year or 10-year period, such as this provision occurring at the end of the five-year period from 2015-2020, indicates it may be an “accounting gimmick” to cover costs of or revenue shortfalls in certain programs, or to meet some government estimates, Ellis said.
In the recently passed tax bill, tax cuts for individuals are removed after 2025. That makes the cost of the tax bill score better over its 10-year cost analysis.
In 2015, the CBO scored this provision of the trade preferences act at $3.781 billion, and it didn’t indicate what the extra money would specifically support. The increase, however, offset the costs of the trade programs in the first five years, 2015-2020, to a net positive $453 million in federal revenue. In the final five years, from 2021-2025, the programs end up costing the Treasury $5.2 billion, or about $4.8 billion over the entire 10 years of the trade preferences act.
“There was no reason the government needed to have $3.781 billion more in 2020, except to offset something, because they give it right back the following year,” Ellis said. The increase in taxes “allows them to spend more — if I can tease that out without looking at it in more depth — and this [repeal] is basically saying, ‘Ok, we’re just eliminating the gimmick.’”
Tax break borne from tragedy offsets mining company costs for safety enhancements
The second day of 2006 started as thousands had before for an experienced crew of 13 coal miners at the Sago Mine in Upshur County, West Virginia. They entered the mine about 100 miles south of Pittsburgh before sunrise. A dozen of them would never see daylight again.
Half an hour after their descent began, a methane gas explosion shattered the mine’s concrete walls and scattered the rubble mess throughout the 2 miles between the miners and the opening where they’d entered. Before the dusty haze from the explosion’s dusty haze cleared, one miner was already dead.
Due to severed communications lines, the men were unaware that a clear path to escape was a short walk away. Believing they were trapped, all the miners could do was barricade themselves where they’d been working and wait for help. It arrived 41 hours later, too late for all but one of them. The rest succumbed to carbon monoxide poisoning while they waited.
The Sago accident drew unwanted scrutiny to the non-union mine, its parent company International Coal Group Inc. and the firm’s owner at the time, billionaire Wilbur Ross Jr., who in 2017 became President Donald Trump’s Secretary of Commerce, despite broad criticism that his business empire with tentacles to so many industries posed conflicts of interest. Congress faced heavy pressure to act swiftly, and it did, creating new requirements for mine rescue training, reliable communication equipment and other elements of a safe workplace that Sago lacked before the disaster.
But coal company executives, girding against new safety standards likely to thin their bottom lines, acted even faster. Two dozen of them spent the first week of March 2006 on Capitol Hill, buttonholing some 60 members of Congress, angling to share the “guiding principles” that the executives saw as the path to improved safety. Predictably, it included tax relief that would help their companies to afford the more rigorous safety regulations they expected Congress to pass. The coal barons told the world they wanted safer mines, but they whispered to Congress that they weren’t willing to pay for improvements out of their own profits.
International Coal Group tried to keep a low profile, but remained active behind the scenes to protect its bottom line in the face of embarrassing news about its poor safety record in the years immediately preceding the Sago accident. The company hired a crisis PR firm that “worked one-on-one with ICG executives to help enhance their effectiveness” when news cameras were rolling and during “congressional subcommittee testimony.”
Ross’s mining company reported spending $0 lobbying Congress in 2006. Nonetheless, the firm had a conduit for its desires to Capitol Hill in the National Mining Association, an industry organization that International Coal Group was a dues-paying member of at the time. In 2006, the National Mining Association spent $2.4 million lobbying on all issues, including the, an obscure piece of legislation that established tax breaks for rescue training and safety equipment — a provision that is still on the books today.
By the time the Sago accident happened in 2006, King Coal’s heyday as an economic powerhouse had long since withered. In certain regions, though, coal remained — and still does — an influential force. So in the aftermath of the Sago tragedy, big coal looked for friends in the congressional delegations from states whose economies were still reliant on coal mining.
The coal executives found an ally in Sen. John “Jay” D. Rockefeller IV, a West Virginia Democrat whose own lineage gave him reason to sympathize with the mine owners. Rockefeller’s grandfather and namesake made his fortune on natural resources a century earlier, mostly in oil, but in coal as well.
When the elder Rockefeller’s employees at a coal camp in Ludlow, Colorado, struck in 1914 to protest wage law violations, the influential oil and coal magnate appealed to Congress and the governor of Colorado to intervene. The National Guard deployed to Ludlow to roust the strikers and their families from a tent colony they’d established. Gunfights followed. The Guard burned the camp. Before the days-long skirmish was over, more than 60 men, women and children were killed.
Sen. Rockefeller amended tax legislation in 2006 to include the tax breaks for rescue training and emergency equipment that the coal executives coveted. He even twisted the arms of some reluctant fellow Democrats to make sure the subsidies passed.
They were meant to be a temporary bridge to encourage coal companies to spend the necessary money to assure their employees didn’t die unnecessary deaths, like the 12 miners at Sago had. But the tax breaks continue today. Whenever the sun has been poised to set on the tax breaks — and occasionally even after sundown — Congress has bailed out coal companies by extending the relief, sometimes retroactively, as occurred this year.
The estimated $2 million a year in costs for the two retroactive tax benefits provided coal companies for 2017 are easily lost in a massive federal budget. Though modest in the context of the broader tax package, the mine safety and rescue tax breaks illustrate how industry can turn even a tragedy into an enduring political and financial victory.
The sum of the tax benefits has shown the coal industry’s up-front investment lobbying Congress to establish the tax breaks was a winning gambit. These two obscure tax breaks have provided coal companies more than $20 million since 2006.
Rockefeller always had a cozy relationship with his constituents from the coal industry. In 2002, he ranked 13th in donations from the industry among members of Congress, having collected $35,200 — more than any other Democrat in Congress. When Rockefeller ran for re-election to his final term in 2008, following his support for the tax breaks that resulted from the Sago accident, he rose in the rankings to the industry’s third most-supported member of Congress, collecting $102,300 from coal companies. Coal gave Rockefeller almost three times more than it provided any other Democrat in Congress during that election cycle.
Two-word change saves a Kentucky college from paying excise tax
The budget bill’s clarification regarding excise taxes on the investment income of private colleges and universities is estimated to cost the treasury $22 million over ten years, according to the Joint Committee on Taxation.
Thanks to Sen. Mitch McConnell, R-Ky., the clarification changed the definition of “student” to “tuition-paying student.” The fresh terminology exempts at least one school from being subject to the new 1.4 percent excise tax on private university endowments. That tax was a heated topic of December debates and ultimately was included in the Tax Cuts and Jobs Act.
McConnell initially targeted his tweak of the language at that massive tax bill, but Sen. Bernie Sanders, I-Vt., and Sen. Ron Wyden, D-Ore., objected on procedural grounds and the Senate parliamentarian agreed, ruling that the proposal violated Senate budget rules.
In a joint statement, Sanders and Wyden said it was their intention “to raise a point of order to remove these provisions from the conference report and require the House to vote on this bill again. Instead of providing tax breaks to the wealthiest people and most profitable corporations, we need to rebuild the disappearing middle class.”
For McConnell, the removal of the provision was a sign that Sanders had waged “war on Kentucky” — because McConnell’s proposal was primarily designed to help Berea College, a small institution in his home state.
McConnell vowed that he would work with his partners in Congress and Kentucky’s local politicians to exempt Berea College from the tax, which he ultimately did with the help of Rep. Andy Barr, R-Ky.
Berea College is a small residential liberal arts college with 1,600 students. It has a $1.2 billion endowment, which is used to fund 100 percent of its attending students, according to Berea College President Lyle Roelofs.
“We spend about $37,000 to $38,000 to educate each of our students,” he said. If the school were subject to the excise tax, the school would not be able to aid 20 to 30 students or it would have to reduce money or expenditures. These options, Roelofs said, would compromise the quality of education.
But Sanders wasn’t convinced by those numbers, saying that “there are colleges all over this country that use their endowment funds to provide free or significantly reduced tuition for lower-income students.”
Private colleges and universities with at least 500 students and with assets of at least $500,000 per student are now subject to the tax — if more than 50 percent of the students are based in the United States.
Once Roelofs realized his school would be affected by the tax, he reached out to Barr, who ultimately worked with McConnell to put language in the budget bill inserting “tuition-paying” in front of “students” — thus exempting Berea College from the tax.
Rick VanMeter, Barr’s deputy chief of staff, said, “The language was necessary because Senate Democrats used a procedural tactic to remove that language from the final tax reform bill. They were targeting Berea College in a failed attempt to stop the tax cuts.”
McConnell’s office didn’t respond to requests for comment.
“The entire Kentucky congressional delegation is very familiar with Berea and regard it as something that’s important and unique to education,” Roelofs said.
Karin Johns, director of tax policy at the National Association of Independent Colleges and Universities, said the clarification in the budget agreement only removes Berea College from the endowment tax, leaving 28 other private colleges subject to the tax.
“The new excise tax on certain private college endowments is an unprecedented intrusion into charitable giving,” she said. “It’s an unfair attack on one sector of higher education, creates a dangerous precedent of taxing charities, and does nothing to help students.”
The NAICU supports all efforts to repeal the tax.
Roelofs, who has served as president at two colleges prior to Berea, agrees with Johns’ statement, noting that his previous employers had substantial endowments that went to helping students.
The Urban Institute's tax expert Gene Steuerle said the excise tax is an awkward way to fund other tax cuts within the budget since some colleges are subject to the tax over others.
“They took out Berea College … with the argument that Berea was subsidizing most of their students,” he said. “There was a notion that this wasn't the type of college we’re after. This exemplifies the awkwardness.”
Starkist stands to gain from American Samoa tax credit
The American Samoa Economic Development Credit has been around since President George W. Bush signed the Tax Relief and Health Care Act of 2006, and it has been extended year after year since then.
StarKist Company has been the primary beneficiary of the credit and the only company lobbying to keep it on the books since the firm was divested from Del Monte Foods in 2008. Del Monte Foods also lobbied for the extender before the split.
StarKist Company is the largest private-sector employer in American Samoa, employing 2,300 workers on the islands.
The tuna-canning company hired Steptoe & Johnson to lobby for the extender in the the House and Senate. Starkist spent $350,000 in total on lobbying in 2017, according to the Center for Responsive Politics.
American Samoa’s Delegate Aumua Amata Coleman Radewagen, R, received $9,300 from Starkist Co. in the 2016 election cycle, according to the Center for Responsive Politics. Starkist had previously given $24,000 to American Samoa’s now deceased Delegate Eni Faleomavaega, D, from 2010 to 2014.
Although Radewagen has received money from StarKist, she isn’t the only member of Congress to impart influence in keeping the extender alive, according to attorney and lobbyist Scott Sinder of Steptoe & Johnson.
Sinder said Senate Finance Committee Chairman Orrin Hatch of Utah was a “critical voice” in helping the extender see life for another year. Hatch introduced a Senate bill that would prolong the life of the credit, which five other Republicans cosponsored.
Radewagen said the extender “supports the long-term presence of jobs” in American Samoa, but noted that a longer-term extension would create more stability.
Andrew Choe, president and CEO of StarKist Co., said the company is competing with other canneries that operate in China and Thailand at a cheaper and subsidized cost. Without the credit, he said, “it would not be economically viable to continue to manufacture in the American Samoa Territory.”
American Samoa has no other large employers other than the territorial government, said Joel Hannahs, press secretary for Radewagen.
Hannahs said a Chicken of the Sea tuna cannery closed down in the islands in 2009, which resulted in a few thousand jobs being lost. “The sole purpose of the tax extender from the congresswoman’s perspective is to ensure a measure of stability for the workers and local commerce in a place which is economically and geographically isolated.”
The credit was only extended to cover 2017. It will cost the treasury $11 million in fiscal year 2018, according to the Joint Committee on Taxation.
Businesses operating in ‘distressed communities’ across the U.S. see their tax credit extended
Businesses operating in congressionally designated empowerment zones also received an extension of tax benefits through 2017.
Federal empowerment zones were first created in 1993; the zones encompass distressed communities that need help, and the idea is to offer tax benefits within them to spur economic development.
For instance, employers can deduct 20 percent of an employee’s first $15,000 in wages if that employee lives and works in a designated empowerment zone. Other benefits available under the empowerment zone program include tax-exempt bonds, the ability to defer capital gains tax when certain assets are sold and replaced, and partial exclusion of capital gains tax on sales of certain stocks.
There are currently 40 federal empowerment zones. New competitive bids for potential empowerment zones were extended in 1998 and 2001, but the break expired in 2009. It was extended in 2010 and again in 2013.
The zones are usually distressed rural or urban communities ranging from parts of Riverside County, California, to New Haven, Connecticut. Other zones include parts of cities like New York City, Los Angeles and Baltimore, and rural regions like southwest Georgia and the southeastern Kentucky highlands.
The empowerment zone tax incentives are expected to cost $205 million in 2018, according to the Joint Committee on Taxation, and their effectiveness has been questioned over the years. The zones and the tax breaks offered within have generally been championed by members of Congress who already have empowerment zones in their states. Sen. Debbie Stabenow, D-Mich., introduced legislation along with Republican Roy Blunt of Missouri, to expand the empowerment zone programs in 2015, but that bill did not progress in the Senate. Detroit, Michigan, and St. Louis, Missouri, are both recognized as empowerment zones. Expanding the empowerment zones would “encourage growth by allowing more businesses to hire workers and invest in our cities, which will keep moving our country forward,” Stabenow said in a press release at the time.
Companies also have an interest in advancing the interests of empowerment zones. Senture, a call center operating out of an empowerment zone in Eastern Kentucky, reported paying the lobbying firm JBS Communications $80,000 in 2017 to advocate for empowerment zones, among other issues. Jeff Speaks, the owner and only lobbyist for JBS Communications, said Rep. Hal Rogers, R-Ky., whose district includes the Eastern Kentucky empowerment zone, has been supportive. Speaks previously worked as an adviser for Rogers, who formerly chaired the House Appropriations Committee.
Washington lobbying firm Akin Gump Strauss Hauer & Feld was hired by the Puerto Rico Statehood Council and Empresas Fonalledas, a Puerto Rican corporation that owns a large shopping mall on the island, and other companies, to lobby for issues including hurricane recovery aid and designating the U.S. territory an empowerment zone for 10 years. The firm was paid $560,000 in 2017 by the statehood council and $370,000 by Empresas Fonalledas.