Short line railroads, the government of American Samoa and owners of Nascar tracks are among a diverse group that may encounter added resistance in a drive to protect billions of dollars in U.S. tax breaks.
Each year or two lawmakers collect dozens of unrelated tax advantages for businesses and individuals and renew them in one measure. The grab bag is a bonanza for lobbyists stretching from Daytona Beach, Florida, to Pago Pago in American Samoa.
“Over time, they’ve been collected together and considered as a package. Some of these provisions move by inertia,” said Marc Gerson, a former Republican tax counsel to the House Ways and Means Committee. “There hasn’t been a separate evaluation of their merits,” he told Bloomberg Government.
Though such tax breaks are a relatively small part of the proposed $3.7 trillion federal budget, they are sure to undergo tougher scrutiny at a time when Congress is pressing for cost-cutting solutions to narrow the federal deficit.
The most recent array of at least 33 tax renewals -- also known as extenders -- add up to an estimated $30 billion for 2012, according to the Joint Committee on Taxation. That doesn’t count a $6 billion ethanol tax credit that the Senate in June voted to end.
The ethanol credit and other tax breaks in the current extenders package are due to expire on Dec. 31. In the meantime Congress may consider an overhaul of the tax code while lowering the overall rate, making it more likely each extender will be studied individually.
“If it’s part of tax reform, I think a lot of these extenders go away,” said Christopher Condeluci, a former tax counsel to the Senate Finance Committee.
Language mandating an analysis of the extenders was removed at the last minute from the most recent package approved by Congress last December. They were renewed under the Tax Relief, Unemployment Insurance Reauthorization and Job Creation Act of 2010, which also continued Bush-era tax cuts through 2012 along with an extension of federal jobless aid for 13 months and a 2 percentage point cut in the payroll tax for one year.
Lloyd Doggett, the Texas Democrat who inserted the analysis provision into the extenders legislation, said lawmakers can’t afford to ignore wasteful or unnecessary spending of any size.
“Just as with direct expenditures, we need a reasonable, systematic process evaluating every tax expenditure to weed out those which have outlived their usefulness,” Doggett said in a statement.
John Buckley, former Democratic chief counsel to the House Ways and Means Committee, said many of the breaks benefit the public and could survive a review process and deserve to become permanent.
One reason they aren’t permanent is that it’s easier to win approval of something with a smaller price tag, said Buckley, now a visiting professor at Georgetown Law School. “To extend it permanently is very costly,” he said.
Permanent tax breaks are evaluated for projected cost over 10 years rather than annually. The temporary nature of the current provisions means ending them doesn’t save much money.
It’s become more common in recent years to offer an incentive through the tax code rather than with an earmarked grant.
“It’s a lot easier to give benefits through the tax code than it is through a spending program. One makes the government look smaller. But they both do the same thing,” said Roberton Williams, a senior fellow at the Tax Policy Center in Washington, which is funded by the non-partisan Urban Institute and the Brookings Institution.
Some tax breaks, such as the research credit for businesses and the individual deduction for state and local general sales taxes, get wide support among lawmakers. Other provisions are fiercely defended by narrow constituencies prepared to argue that they are vital.
Rail executive Mark Blazer said eliminating a tax credit for short-line railroads would slow or eliminate upgrades to tracks and bridges and push shippers to use trucks. “That means greater wear on roads and more cost to state and local government,” said Blazer, a senior vice president at Watco Cos. Inc., the Pittsburg, Kansas-based operator of 23 short-line routes.
The 50 percent tax credit for track maintenance would cost the Treasury about $166 million in forgone revenue next year.
Watco and other short-line rail operators also are backing legislation to extend the credit for five years.
Daniel Houser, chief financial officer of the International Speedway Corp. of Daytona Beach, which operates 12 Nascar tracks, said shortened depreciation of track construction projects -- expected to cost the Treasury about $29 million if extended in 2012 -- is an economic stimulus.
“These are shovel-ready projects that we are financing,” he said.
The speedway group is lobbying to make its 7-year-old tax benefit permanent, Houser said.
The government of American Samoa is pushing for at least a five-year extension for an economic development tax credit, expected to cost $19 million next year.
The year-to-year credit benefits StarKist Co., a unit of South Korea-based Dongwon Industries Co. Ltd., which operates a cannery in Pago Pago, the capital of the Washington, D.C.-sized U.S. territory, according to Edward Ing, a lobbyist for the American Samoan government.
Ing said lengthening the time the credit is available would give businesses certainty about financing when they plan development projects on the islands.
Williams of the Tax Policy Center said the sheer number of special provisions, both permanent and temporary, make the tax code needlessly complex and expensive to comply with and undermines confidence in its fairness.
“The opacity makes it hard for people to understand what the tax code is doing,” Williams said. “It makes people suspicious. They think somebody else is getting a tax break and I’m not.”