NO FISCAL CLIFF FOR CORPORATE TAX LOOPHOLES

ABSTRACT: So you thought our Washington politicians were serious about reducing the deficit? Guess again. The actual bill that averted the “fiscal cliff” in January included 43 corporate tax breaks worth $67 billion in 2013, which is more than the revenue that was raised! This means that the “fiscal cliff” legislation did NOT decrease the deficit, but rather increased it. The tax breaks include: 1) $11 billion for corporations such as GE, Citicorp, and Ford on overseas earnings, 2) $430 million for Hollywood producers for filming in the US, 3) $331 million for railroads for track maintenance, 4) $500 million for pharmaceutical giant Amgen, and 5) $120 million for Whirlpool Corporation. The support for corporate tax loopholes is often bipartisan as they provide leverage for campaign contributions.

So, take with a big grain of salt all the talk about deficit reduction. Corporate welfare continues unabated while deficit reduction is used as an axe to cut government programs, many focused on helping low and middle income families. And take with a big grain of salt the talk about the need to cut Medicare and Medicaid spending when big giveaways to Amgen and other pharmaceutical corporations are costing these programs billions of dollars every year.

Note: I’m back to blogging after a three month hiatus. And no, unfortunately, this post is NOT an April Fool’s joke.

FULL POST: So you thought our Washington politicians were serious about reducing the deficit given the last minute “fiscal cliff” deal in January and the automatic spending cuts (“the sequester”) that went into effect on March 1? Guess again. Corporate tax loophole giveaways that were actually part of the “fiscal cliff” bill cost more than the revenue that was raised!

As background, the manufactured austerity crisis, known as the “fiscal cliff,” was a package of spending cuts and tax increases set to go into effect automatically on December 31, 2012, if a substitute agreement on deficit reduction wasn’t reached. (See post of 12/12/12 for more details.)

Early on New Year’s Day legislation was passed that supposedly tackled the deficit by increasing revenue. It also postponed the spending cuts until March 1. Most of the scheduled tax increases were scaled back, so only $30 – $60 billion per year in new revenue was generated. Income tax rates on individuals with incomes over $400,000 were increased, with some reductions in deductions starting at $250,000 in income. The estate tax was increased a bit and workers’ Social Security taxes were increased by 2% of wages on earnings up to $110,000. (This restored a temporary cut in the Social Security tax that was targeted at boosting the economy and middle and low income workers during the Great Recession.) (See post of 1/7/13 for more details.)

The postponed spending cuts ended up going into effect on March 1 because our politicians could not come to an agreement on other deficit reduction measures. These spending cuts are likely to hurt the economy, slowing the recovery and increasing unemployment. In addition, these cuts are hurting low and middle income families. Head Start’s high quality school readiness programs are serving fewer children – fewer 3 and 4 year olds from families in poverty. School systems are laying off teachers and staff. College students are losing government support. Housing authorities are laying off staff and cutting housing assistance to poor families. And there will be cuts in health care that will disproportionately affect low income individuals. [1]

Despite all of this, quietly, and with very little coverage by the mainstream (corporate) media, the actual bill that averted the “fiscal cliff” in January included 43 corporate tax breaks worth $67 billion in 2013, which is more than the revenue that was raised by the highly publicized tax increases. [2] This means that the “fiscal cliff” legislation did NOT decrease the deficit, but rather increased it by giving more in tax breaks to corporations than it raised in tax revenue from individuals!

For example, Whirlpool Corporation got a tax benefit worth an estimated $120 million in 2012 and 2013 after spending $1.8 million on lobbying over the last two years; a 6,700 percent return on investment. Whirlpool’s total income taxes paid to federal, local, and foreign governments for 2009 -2011 were a REFUND of $561 million! And it is carrying forward federal tax credits it can use to decrease its US taxes in future years. Meanwhile, Whirlpool closed a factory in Arkansas and laid off 800 workers, moving the manufacturing of its refrigerators to Mexico. This was part of an overall reduction of its workforce in North America and Europe of 5,000 jobs, which it announced in 2011. [3]

Another example was a provision in the “fiscal cliff” legislation that gave two years of relief from Medicare cost controls for certain drugs. Although not mentioned by name, the clear beneficiary is the pharmaceutical giant, Amgen. It is estimated that this loophole will cost taxpayers about $500 million over two years – to the benefit of Amgen. The company’s CEO quickly informed investment analysts of this good news. Two factors make this particularly egregious:

• Amgen had already received a two year delay on these cost controls and another one is hard to justify
• Two weeks earlier, Amgen had pleaded guilty in a major federal fraud case to illegal drug marketing and had agreed to pay $762 million in criminal and civil penalties

This particular case is tied to close relations Amgen has with three Senators: Max Baucus (D – Montana), Mitch McConnell (R – Kentucky), and Orrin Hatch (R – Utah). [4][5] As in this case, the support for corporate tax loopholes is often bipartisan. Many of them have to be renewed every two years. This gives members of Congress leverage for an on-going source of campaign contributions from these corporations and their lobbyists. The supposedly temporary nature of these corporate tax loopholes also avoids the accounting analysis, and resultant publicity, the federal budget process requires of permanent or longer-term tax expenditures. Overall, corporate welfare will cost the federal government at least $154 billion in 2013 through 135 individual provisions in the tax code. [6]

Other corporate tax breaks in the “fiscal cliff” legislation include:

• $11 billion for corporations such as GE, Citicorp, and Ford on overseas earnings
• $430 million for Hollywood producers for filming in the US
• $331 million for railroads for track maintenance

So, take with a big grain of salt all the talk about deficit reduction. Corporate welfare continues unabated while deficit reduction is used as an axe to cut government programs, many focused on helping low and middle income families. And take with a big grain of salt the talk about the need to cut Medicare and Medicaid spending when big giveaways to Amgen and other pharmaceutical corporations are costing these programs billions of dollars every year.