Dec. 14, 2010 -- Like gluttons at a buffet party, politicians couldn't help loading their plates with goodies for various industries and individuals in this week's 83-15 Senate tax package vote.
Not only did the Senate vote to extend the Bush-era tax cuts, they carved out special provisions for everything from tax credits to Hollywood producers to breaks for rum production in Puerto Rico and the Virgin Islands.
These 60 or so benefits or business "extenders" that assist specific industries added substantially to the estimated $858 billion cost of the bill over the next two years, a gargantuan meal at the U.S. taxpayers' expense that will have to be paid for in future years.
"These extenders comes up every year or so in Washington just when you think they're going to expire," said Mark Robyn, staff economist with the Tax Foundation. He said the extender provisions are meant to stimulate the economy and investment but there are ongoing debates about whether they work.
More than two dozen amendments to the Senate bill have been filed addressing breaks for even more sectors -- it's unclear if or when these will come to a vote. The House has yet to get its collective hands on a bill.
Here's some of the special-interest provisions in the Senate bill:
• "Special expensing rules for certain film and television productions" allow studios to deduct up to $15 million of movie production property costs if at least 75 percent of the total compensation for production is in the country. If a significant amount of production expenses take place in low-income or distressed communities, studios can deduct up to $20 million.
Rumming it Up
• Puerto Rico and the Virgin Islands will receive the increase of rum excise tax revenues from $10.50 to $13.24 per proof of gallon. It is a temporary excise tax imposed on distilled spirits produced or imported into the U.S., but does not apply to distilled spirits exported from the U.S.
Gentlemen, Start Your Tax Engines
• The bill calls for a special accounting provision for motorsports entertainment complexes like NASCAR to have a 7-year "cost recovery period" instead of standard depreciation.
More Green With Your Green
• The ethanol tax credit, known as the volumetric ethanol excise tax credit, or VEETC, will continue at its current level of 45 cents per gallon through Dec. 31, 2011. The tariff on imported ethanol will continue at its current level of 54 cents. None other than Iowa Sen. Chuck Grassley led the inclusion of that provision, which will help the corn farmers of the Republican's home state.
• Other energy tax credits and programs include a grant program for renewable energy developers and a "renewable electricity production credit" of 1.1 to 2.2 cents per kilowatt-hour for production from solar, geothermal and wind power among others.
• Tax incentives for investment in the District of Columbia include a 20 percent wage credit for employers for the first $15,000 of qualified wages to each employee who is a D.C. resident and works within a particular zone.
• A zero-percent capital gains rate from the sale of "certain qualified DC Zone assets" where the poverty is at least 10 percent.
Here are the main provisions of the Senate bill:
Temporary extension of unemployment insurance
• The bill extends unemployment insurance for an additional 13 months. • The normal, maximum duration of state unemployment benefits has been 26 weeks, according to Joe Minarik, a member of the Bipartisan Policy Task Force. "The economy has been deemed so weak that they are going beyond the normal 26 week increment to add another 13 months, to a maximum of 99 weeks per person," he said. "The whole notion of having so many important provisions involving so much money for a tax code on a temporary basis is really unprecedented."
Social Security payroll tax cut
• Workers earning $50,000 would get a $1,000 tax break while those making $100,000 would get a $2,000 break. Employees would contribute 4.2 percent to the social security payroll tax rather than 6.2 percent before wages reach $106,800. "This provision helps low income people the most," said Nick Kasprak, programmer and analyst at the Tax Foundation. • Republicans would have preferred a tax cut in a more "pro-growth" area, such as cutting capital gains tax, according to Ryan Ellis, tax policy director with Americans for Tax Reform.
Lower taxes for those in lower-income range • Increase in earned income tax credit, or EITC, a refundable credit for certain low-income taxpayers. This is an extension of tax relief enacted in 2003 and President Obama's stimulus bill in 2009. Yesterday's bill would extend the EITC rate for families with three or more children of 45 percent through 2012, which was set to expire in January.
• The bill retains the child tax credit at $1,000. • The "dependent care tax credit" increases the credit rate to 35 percent, and increases "eligible expenses" to $3,000 for one child and $6,000 for two or more children.
Return of the estate tax • The estate tax could return at 35 percent, with a $3.5 million exemption. "The exemption is a lot higher and the estate tax is still lower than it has ever been," said Kaspark. • If Congress does not act formally, the estate tax could return in January at 55 percent, with a $1 million exemption.