If more evidence is needed as to why Congress needs to impose self-discipline on tax and spending policy, keep reading.
The World Trade Organization ruled in 2002 that a U.S. tax break for exporters constituted an illegal export subsidy. Change it by the end of 2003, decreed the WTO, or the European Union, the complaining party in the case, would be entitled to slap $4 billion worth of punitive sanctions on U.S. goods.
Avoiding a $4 billion penalty sounds like a pretty good incentive to make that change ASAP. Virtually no one defends the export tax break now. It grants U.S. multinationals a partial tax exemption for income their foreign subsidiaries earn from handling U.S. export sales. That’s illegal and has to go. But the illegal export break is still in force. The EU penalties began mounting in March on selected U.S. food products, machinery, textiles and toys.
Congress is debating how to get rid of the export tax break. So far, though, the answer amounts to this: Congress shall giveth much, much more than it taketh away. The Senate last week voted 92 to 5 to approve legislation to remove the export tax break–and create a slew of new special interest tax breaks.
The bill eliminates the export break, which would raise taxes that manufacturers pay by an estimated $5 billion a year, about $50 billion over the next decade. But the Senate version includes more than 150 business tax breaks totaling over the decade $170 billion–more than three times the cost of the export break. The House version, which will be debated after Memorial Day, would create a mere $140 billion in tax breaks.
Instead of just fixing the problem, points out Keith Ashdown, vice president of Taxpayers for Common Sense, “lawmakers have lined this bill with parochial tax pork that does nothing but bust the budget.
“If you work on K Street,” Ashdown said, referring to Washington’s infamous lobbying domain, “and aren’t getting anything out of this legislation, you should be fired.”
There are tax breaks for, among others, the cruise ship industry, NASCAR, U.S. bow and arrow makers, dog and horse racing, makers of small aircraft, livestock and horse owners, shortline railroads, farmers and ranchers, trial lawyers and Hollywood film studios.
Tax breaks are included for oil, gas, nuclear energy, utilities and ethanol ($18 billion worth transplanted onto this bill from the stalled energy bill). There’s also a break for developers who want to convert an historic hotel in downtown Sioux City, Iowa into low-income housing for seniors. Last, but certainly not least, there’s a tax break to help Oldsmobile dealers cope with the painful reality that General Motors has stopped making Oldsmobiles.
None of these has anything to do with the illegal export subsidy, but everything to do with the reality that this is likely to be the only business tax-cut vehicle on the congressional calendar. Senate Finance Committee Chairman Charles Grassley (R-Iowa) acknowledged as much when he reminded his brethren that this bill “could be the last train out of town this year.”
The Senate insists that it is rounding up the usual suspects–closing tax loopholes and cracking down on tax shelters–to pay for this. But that claim is a long way from reality. The action now shifts to the House where the pressure to employ the “everything but the kitchen sink” approach to secure passage likely will be repeated.
And you wonder why the federal deficit is going to hit $521 billion this year.
