A troubling orgy of pork

The corporate tax bill passed last week not only lavishes rewards on a select few, it undermines market forces and provides little hope that it will do what it's supposed to do

Author: Robert Trigaux

Published: October 17, 2004

You won't find this recipe for overstuffed pork in the Taste section of the newspaper. This seasonal favorite, served on a bed of massive corporate tax cut legislation and approved last week by Congress, looks sure to be blessed by the White House before the Nov. 2 election.

The 633-page tax bill, misleadingly called the American Jobs Creation Act of 2004, is the biggest porkfest to be force-fed to taxpayers in a generation. It will guarantee indigestion.

The tax legislation is falling under special scrutiny in the final weeks of a neck-and-neck presidential race between President George Bush and Sen. John Kerry. Campaign speeches attack or defend the direction of the country's overall tax policy, while the related roles of corporate profits offshore in tax havens and U.S. jobs moving overseas are political hot buttons.

A key part of the tax bill trims the top tax rate on manufacturers by 3 percentage points to 32 percent. And it offers a tax amnesty to encourage manufacturing corporations to bring offshore profits back to this country and - hopefully - invest those funds in new jobs. Reinvesting may occur, analysts warn, but creating substantial numbers of new jobs in the process may be wishful thinking.

A lack of corporate cash is not the problem. Major U.S. corporations already are sitting on enormous piles of money, but they are not choosing to invest and expand. U.S. CEOs still are not confident enough in the economy to add large numbers of new jobs. Besides, it has become far easier for companies to grow through gains in productivity - not people - or to outsource jobs to cheaper workers in low-wage countries.

A repatriation of overseas profits during a window (through 2005) of low tax rates may boost the U.S. economy through stock buy-backs or investments in new technology. But it seems an unlikely tool for significant job creation. There's a more fundamental change under way in the job market - I think it's called globalization - that additional investment here will not completely solve.

The tax package is a whopper both in size and in vague language that helps obscure the specific business winners. Among the lucky recipients of favorable provisions are the energy, tobacco, restaurant, technology, pharmaceutical, shipping, gambling, liquor, shopping mall, fishing, real estate, filmmaking and timber industries.

Just a few of the corporate winners are Carnival Cruise Lines and Royal Caribbean, GE, Home Depot, Starbucks, NASCAR, Northrop Grumman, ConAgra Foods and Changing World Technologies. Wealthy owners of sports teams even won the profitable perk of writing off the full value of their teams in just 15 years.

My favorite provision?

Taxpayers will pay tens of millions for bonds to help finance a massive domed resort and mall dubbed Destiny USA near Syracuse, N.Y., that its developer immodestly claims will become "the most visited destination on Earth" and rely completely on renewable energy. The tax bill never identifies the proposed Destiny USA by name but buries the reference under something called "brownfields demonstration program for qualified green building and sustainable design projects."

It so happens that Destiny USA's developer, Robert Congel of Pyramid Cos. in Syracuse, is a so-called "Ranger," one of an elite class of fundraisers who has raised more than $200,000 for Bush's presidential campaign.

The original intent of the tax bill was modest: to eliminate a $5-billion-a-year subsidy for U.S. exporters that the World Trade Organization had ruled illegal. But the bill soon became a $140-billion bonanza of paybacks and gifts by legislators to favored business backers. Congressional leaders pushing the tax bill kept adding sweeteners to win the support of individual legislators to assure final passage just weeks before voters go to the polls.

In Florida, a key swing state in the presidential election, even consumers get a small slice of pork. Florida tax filers who itemize their deductions would be allowed to deduct sales taxes on their 2004 and 2005 federal income tax returns. About 2.5-million Floridians should save an average of $300 each year.

Still, Washington tax analysts hardened to the coarse ways in which taxes are made recoiled at the magnitude of the tactless package.

Keith Ashdown, vice president of Taxpayers for Common Sense, called the package "an orgy of 276 special interest tax breaks and giveaways" and a "cynical attempt to bribe swing states in one of the closest elections in our nation's history."

The Tax Policy Center, a joint venture of the Urban Institute and Brookings Institution, suggested the tax bill - by complicating the tax system and letting the government, rather than market competition, choose corporate winners and losers - does exactly what the Bush administration and Congress claim they do not want.

The timing and sweep of the corporate tax cuts would not be so absurd if the government was not already setting records for federal deficits. Advocates of the legislation insist the cost will be made up by sunsetting certain provisions, meaning some tax cuts are temporary and will disappear in a few years.

That makes veterans of the tax wars in Washington snicker. Provisions that are supposed to sunset rarely go away.

Besides, how low can federal taxes go without spending cuts? Corporate taxes already are at their lowest level since World War II. Now add this tax bill's cuts to the series the Bush administration has already handed to taxpayers. Who will really pay for these tax cuts - cuts made with borrowed money?

Here's a look at the tax package and 10 examples, ranked by cost, of industries and interested parties that will benefit:

TOBACCO: $10-billion to buy out tobacco farmers from an outdated government quota system.

FLORIDIANS: $5-billion to allow residents in Florida and eight other states with no state income tax to deduct state sales tax for the next two years.

MULTINATIONAL AMNESTY: $3.3-billion to cover the tax holiday for U.S. corporations to return overseas profits in tax havens at a 5.25 percent tax rate.

ELECTRIC UTILITIES: $2.3-billion in tax credits for electricity produced by "alternative" fuels.

RESTAURANTS: $494-million to let restaurants depreciate improvements in 15 years, rather than 39.

HOLLYWOOD: $336-million over five years to encourage film production in low-income communities in Alabama, Arkansas, Illinois, Kentucky, Louisiana, Mississippi, Missouri and Tennessee.

TRIAL LAWYERS: $327-million to allow tax deductions for certain costs while litigating discrimination cases.

NASCAR: A $101-million break for racetrack owners to speed up how quickly they can write off grandstand facilities.

CRUISE LINES: $28-million to allow Carnival, Royal Caribbean and other cruise lines to postpone taxes on airplane tickets, hotels and other excursions they sell in the United States.

GAMBLING: $27-million for a tax break to let nonresident foreigners gamble tax-free on U.S. horse and dog races.

Those are the tip of a tax-break iceberg. Some provisions of the tax package last week quickly caught the media's attention. That's why Home Depot appeared so prominently in stories as a beneficiary of what is a $44-million tax break to suspend import duties on foreign-made ceiling fans.

Plano Molding Co. of Illinois, a prominent maker of fishing tackle boxes in House Speaker Dennis Hastert's congressional district, also gained attention because the bill provides $11-million to cut the excise tax on tackle boxes.

Even archery products managed to win a $9-million tax break on bows and arrows. And in a coup for such millionaire pro golfers as Tiger Woods, a provision would exempt PGA Tour members from new rules limiting the use of high-end retirement plans that were abused by Enron executives.

If the federal government wants to reduce corporate taxes, it should demand the self-discipline to find and retain counterbalancing spending cuts elsewhere in the federal budget. And if tax-cutting truly is a policy goal for the country, why are cuts going to so many hand-picked companies, industries and well-heeled individuals - but not to others?

There are two concerns here: One is fiscal responsibility; the other is market fairness. Without either one, it's just another recipe for disaster.