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Updated Thursday, January 3, 2013 at 09:37 AM

'Cliff' deal has billions in tax breaks

By Joseph Tanfani and Matea Gold
Tribune Washington Bureau

WASHINGTON — In the last-minute deal-making to stop the nation from tumbling over the so-called fiscal cliff, Congress and the Obama administration decided not to spare most people from an increase in Social Security payroll taxes. But they did find room for billions in tax breaks for rum makers, racetrack owners, railroads — and Hollywood studios.

Riding along on the compromise bill were dozens of provisions that renewed existing tax breaks. All told, the business tax breaks will cost more than $63 billion next year, according to an analysis by the Joint Committee on Taxation.

Supporters of such deals said that by helping businesses, the measures protect jobs.

Watchdog groups, however, said the survival of the subsidies exposes the broken nature of the tax system and Congress' inability to tackle it. "These are basically spending subsidies written into the tax code, and there was just no discussion about them," said Robert Bixby, executive director of the Concord Coalition, which lobbies against the federal deficit.

The measures did get examined in detail by the Senate Finance Committee, which approved them by a 19-5 vote in August. The package also includes extensions on popular breaks that benefit individuals, including the deduction for state and local taxes.

The rum-excise deal has come under particularly harsh criticism in Congress. Under the 100-year-old arrangement, the government collects a tax on rum and returns nearly all of it to Puerto Rico and the Virgin Islands to support public programs, distributing $547 million in fiscal 2009.

In 2008, the Virgin Islands agreed to use that money to finance a new Captain Morgan distillery for Diageo, the giant British spirits company. The company moved its operations from Puerto Rico. Now, other rum makers have gotten in on the deal, and critics say the tax, rather than helping average people, has become a subsidy to the industry.

"The purpose is to help the citizens, not simply give it back to the producers," said Pedro Pierluisi, Puerto Rico's delegate to Congress, who has been pushing legislation limiting the corporate subsidies.

A $62 million tax credit for employers in American Samoa benefits StarKist, the largest private employer in the South Pacific island chain, with nearly 2,000 workers there.

Other tax credits benefit businesses that train mine-rescue teams and help develop the New York Liberty Zone, an area around the site of the World Trade Center. A dozen or so extend credits for green energy: wind farms, plug-in electric vehicles, energy-efficient appliances, and biodiesel and renewable diesel operations.

Supporters of the tax breaks rejected arguments that the provisions were giveaways slipped into the fiscal-cliff package. Senate Democratic aides noted that the package of tax extenders passed the Finance Committee with overwhelming bipartisan support in August and always had been in consideration for inclusion in a year-end fiscal bill.

"This was not some last-minute deal," said Sean Neary, a spokesman for Sen. Max Baucus, D-Mont., finance committee chairman.

Included in the bill is an extension of a tax break for film and television productions that shoot in the United States, allowing them to expense the first $15 million of costs (or $20 million if the production occurs in economically depressed areas.) The incentive will cost an estimated $266 million in 2013.

Movies such as "Up in the Air" and "Transformers: Dark of the Moon" and TV shows such as "Royal Pains" have benefited from the provision, said Kate Bedingfield, a spokeswoman for the Motion Picture Association of America.

The "NASCAR tax break," which will cost an estimated $46 million this year, allows motor-racing tracks to depreciate assets faster than other businesses.

"This tax provision is a job creator," said Rep. Mike Thompson, D-Calif., whose district includes the Infineon Raceway in Sonoma. "Without it, folks would see job losses."

Steve Ellis, vice president of Taxpayers for Common Sense, advocates for cuts in federal spending, said he was surprised to learn the provisions were in the bill.

"I guess I shouldn't have been," he said. "They're like the cockroaches of Washington policy. They always survive."

Material from The New York Times and McClatchy Newspapers is included in this report.


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