'Corporate Tax Loopholes' and the Fiscal Cliff


Ending Immediate Writeoffs of Equipment Purchases: $582.7 billion. This is also known as "bonus depreciation." Let's say you own a factory, and you buy a new conveyor belt. Under this tax exclusion, you'll be able to deduct the total cost of that equipment eventually, as its value depreciates. "My favorite example is a NASCAR track," said Rebecca Wilkins, a senior counsel at Citizens for Tax Justice. "You've got the track itself, you've got the fencing and the stands and the administrative building ... the tax code allows all of that to be written off over seven years." When Obama castigated corporate-jet owners, this is what he was talking about: Writing off the purchase of a corporate jet as equipment.

Thanks to stimulus provisions that accelerated the depreciation writeoff, businesses have been able to write off half or all of their equipment purchases immediately, according to the Tax Foundation. Going back to a slower schedule would make equipment purchases less enticing to businesses, but it would raise billions. The catch is that closing this "loophole" would mean rolling back an incentive for businesses to invest -- an incentive magnified under Obama's own stimulus bill.

Ending the Domestic Production Credit: $154.3 billion This credit applies to domestic manufacturing -- but that covers more than just factories. Oil and gas drilling is an oft-cited example.

"That is something that was introduced in 2004 as a way to reduce the effective tax rate of manufacturers ... and that is a special loophole that doesn't need to be there," the Tax Foundation's Will McBride said. "There should be no special treatment for manufacturers, and it created the problem of defining manufacturing."

But the political difficulties of ending this credit are obvious. Who wants to propose making that Made in America label more expensive?

Along with writeoffs for public bonds, those three are the biggest corporate tax expenditures. While the corporate tax code is thick with credits and exclusions -- 134 scored by the Joint Committee on Tax Reform, not to mention those that apply to small business that file as individuals -- some experts say it would be tough to generate meaningful revenue by nickel-and-diming the smaller provisions, most of which are worth tens of billions of dollars, not hundreds.

"If you're just dealing with the little cats and dogs, you can't buy much rate reduction, and I think some of the big ones are things that would probably be politically very difficult to do," said Toder of the Tax Policy Center.

In other words: Closing "corporate tax loopholes" can generate enough revenue to play meaningfully into a deal to avoid the so-called "fiscal cliff," as Obama and Boehner look for trillions in savings. But the politics can be tough, and even supporters of corporate tax reform are skpetical that credits and exclusions alone can buy enough savings without a political fight.

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