Small Interests Targeted for Big Tax Breaks
By Clay Chandler
By Clay Chandler
To hear proponents tell it, the big winners of tax legislation approved by the House and Senate last week would be hard-working middle-class parents, students struggling to finance a college education, and businesses and investors who generate new jobs.
But a host of smaller interests would cash in, too.
Clinging like barnacles to both tax plans are scores of detailed proposals to slash taxes for a variety of narrow interests, including bakery companies, apple cider distillers, low-income farmers, luxury boaters, sky-diving instructors and even whaling captains.
Under provisions in the House and Senate tax bills:
Truck drivers, airline pilots and laborers in Alaskan fishing camps could claim more generous deductions for meals away from home.
Friends and relatives of business executives would be spared the expense and inconvenience of reporting fringe benefits when they hitch a ride on a corporate jet.
States served by Amtrak, a long-standing priority of Senate Finance Committee Chairman William V. Roth Jr. (R-Del.), would be able to tap a new federal Inter-city Railway Fund to be financed by siphoning off half a penny a gallon from taxes now collected on gasoline and other fuels.
Congressional tax writers are often criticized for taking "rifle shots" carefully targeted proposals aimed at a tiny group of beneficiaries. But this year's tax effort features "bow" and "harpoon" shots as well.
A proposal championed by Sen. Orrin G. Hatch (R-Utah) responds to makers and retailers of archery products, who have long complained about the excise tax on arrows. At the industry's behest, Hatch has drafted a proposal to replace that tax, which is collected from thousands of sporting-goods retailers, with a new one collected from the hundred or so firms that manufacture four arrow components shafts, points, knocks and vanes.
Sen. Frank Murkowski (R-Alaska), meanwhile, won Senate support for a provision that would grant whaling captains a charitable credit of up to $7,500 for food and equipment expenses incurred during hunts recognized by the Alaska Eskimo Whaling Commission. The change is urgently needed, Murkowski argues, to enable whaling captains to "continue the age-old tradition of sharing whale meat and muktuk [whale blubber and skin] with all members of their North Slope villages."
The proposal, which would benefit about 40 captains and reduce federal revenue by $300,000 a year, is designed to resolve a nasty dispute with the Internal Revenue Service, which has rejected the whalers' claim that sharing muktuk with an Eskimo village isn't much different from making out a check to the United Way.
"If a captain . . . donated the whale meat to a local organized charity," Murkowski contends, he "almost certainly would be able to deduct his costs for tax purposes."
The tangle of proposed provisions would add another layer of complexity to the already Byzantine federal tax code and deprive the Treasury Department of tens of billions of dollars over the next five years. Some tax experts and economists warn that few of the proposals would benefit the economy, and that in aggregate, they could do much harm by distorting economic decisions and corroding public trust in government.
America "is being pecked to death by ducks," laments University of Maryland economist Mancur Olson.
Whether these finely calibrated proposals will become law depends on the outcome of a conference committee that will meet next month to reconcile the House and Senate bills. Yet it seems inevitable that many will survive. Republicans and Democrats alike defend special-interest breaks in the House and Senate tax bills as the political sugar that makes it possible for Congress and the White House to swallow the distasteful spending cuts contained in this year's balanced budget plan.
The profusion of tiny tax breaks "is all too characteristic of what we've seen from past Congresses," complains William Niskanen, a member of President Ronald Reagan's Council of Economic Advisers and who now is chairman of the conservative Cato Institute. "The big surprise is how quickly we've seen the Republican agenda shift from reform in the 104th Congress to business as usual in the 105th Congress."
Considered separately, few of the provisions would cost much hardly enough to be noticed in a five-year tax cut plan to lower government revenue by $85 billion. But many of the proposals would concentrate benefits in the hands of a few.
One House provision, for example, would grant a tax break averaging $9,000 a year to about 1,000 wealthy households that established certain types of trust funds before 1984. The proposed change could be worth hundreds of thousands of dollars to the lucky handful of taxpayers, according to administration and congressional tax experts.
Officials said they are unsure who holds those trusts, and disagree about how the tax breaks ended up in the House bill. House tax staffers say Ways and Means Committee Chairman Bill Archer (R-Tex.) included the measure in deference to an administration request. White House officials acknowledge the provision appeared on the administration's April list of tax simplification recommendations, but say they now oppose the change.
In letters to Republican leaders in Congress, Treasury Secretary Robert E. Rubin charged last week that the House and Senate tax bills are "heavily laden with special-interest provisions."
But the administration is backing several generous corporate tax breaks this year, including an export tax credit that would be worth billions of dollars to a consortium of software manufacturers led by Microsoft Corp. The administration also has indicated that it will side with Senate tax writers in resisting Archer's attempt to eliminate the multibillion-dollar federal tax subsidy to producers of ethanol, a corn-based fuel additive.
Some of the tax proposals in the bills approved by Congress would help U.S. firms by raising, rather than reducing, taxes as in the case of a House provision that would increase duties on imported halon, a chemical used in fire extinguishers.
In many instances, proponents defend proposed reductions on the grounds that beneficiaries couldn't compete without them. One illustration is a tax cut advocated by New England lawmakers, including Sen. Jim Jeffords (R-Vt.) and Sen. Daniel Patrick Moynihan (D-N.Y.), that would benefit distillers of apple cider.
Under existing law, hard cider cider containing alcohol is taxed at the same rate as wine, $1.07 a gallon. That's unfair, cider distillers say, because their main competition comes from beer, which is taxed at a rate of 58 cents a gallon. The Senate bill would knock the tax rate on cider with an alcohol content below 7 percent, to 22.6 cents a gallon.
Many of the tax changes are intended to remedy defects in the existing code. Sens. John Chafee (R-R.I.) and John Breaux (D-La.), for example, led an effort to roll back an excise tax on diesel fuel bought by luxury boaters. Because diesel used by commercial boats is not subject to the tax, fueling stations serving both types of vessels are obliged to operate separate pumps one with clear diesel for commercial boats and another with dyed diesel for the luxury craft. As a result, many fueling stations decided the luxury boat business wasn't worth the hassle to the outrage of luxury boat skippers.
Another Senate proposal would make it clear that planes carrying sky divers aren't subject to the ticket tax paid by commercial airlines.
Many of the provisions purport to balance perceived inequities. Rep. Karen Thurman (D-Fla.) led an effort to ensure that survivors of police officers killed in the line of duty get the same tax treatment as survivors of military personnel. It is unfair to tax death benefits paid to survivors of police officers killed on the job, she argued, when there is no tax on benefits paid to survivors of military officers.
Lawmakers from agriculture states, meanwhile, complained that it is unjust to waive capital gains taxes on farmers forced to sell livestock because of a drought, but collect such taxes from farmers forced to sell livestock because of floods. The Senate bill would extend the capital gains break to victims of drought, floods and other "weather-related conditions."
Farmers seem to do especially well in this year's tax-cutting effort. Republicans have sought to deny a proposed $500-per-child tax credit to millions of low-income families now benefiting from an earned income tax credit for the working poor.
To do otherwise, they argue, would amount to an increase in "welfare" spending rather than a cut in taxes.
And yet GOP lawmakers in the Senate readily embraced a proposal sponsored by Sen. Jeffords of Vermont that would ensure there would be no reduction in the earned income credit claimed by low-income farmers who realize a capital gain when they sell aging cows or draft horses.
© Copyright 1997 The Washington Post Company