New Congress targets old story: tax breaks for business

Bill Knight column for Mon., Tues. or Wed., Jan. 12, 13 or 14

In Mitch McConnell’s first indication of his agenda since becoming Senate Majority Leader, the Kentucky Republican last week said the GOP-led Congress would pursue "common-sense jobs ideas" like a tax overhaul. However, some question the concept.

“Over the past 40 years, the number of tax breaks – deductions, credits, exemptions and other tax benefits – has more than tripled,” reported Jeanne Sahadi of CNN Money. “Tax policy experts say it’s time to rethink many of them.”

A recent report in the Wall Street Journal underscores the notion that tax breaks don’t always fulfill promises made by their sponsors or beneficiaries, demonstrating that two telecom corporations reaped rewards from one tax break but contributed little in terms of jobs or improvements.

The U.S. tax code gives corporations special tax breaks that have cut what’s supposed to be a 35-percent tax rate to an actual tax rate of 13 percent (compared to 1955’s corporate income tax of 52 percent). Such breaks save corporations about $200 billion annually, according to the Government Accountability Office.

But tax breaks don’t work sometimes. Examining “bonus depreciation,” Wall Street Journal reporter Thomas Gryta showed that Verizon and AT&T benefited from that measure by billions of dollars, but didn’t benefit the country or economy. Supposedly helping businesses increase jobs, bonus depreciation –which lets corporations more quickly offset income with capital improvement –was promoted as an incentive that would help the economy. But bonus depreciation “did not appear to be very effective in providing short-term economic stimulus compared with alternatives,” according to the Congressional Research Service.

It failed at Verizon and AT&T, the WSJ showed.

“Bonus depreciation doesn’t actually eliminate any tax obligations,” reported Gryta. “Whether the cost of cell phone network gear is written off all at once or over a period of years, essentially the same amount of profit is offset. But bonus depreciation does let companies push taxes off into the future. AT&T and Verizon each have tens of billions of dollars in deferred taxes.”

Verizon estimated that it would get $197 million back last year, compared with a $2.6 billion bill in 2007 (before the tax break passed). AT&T estimated its federal tax bill last year at $3 billion, down from about $5.9 billion in 2007.

Despite promising to create jobs and invest in facilities and equipment (while saving billions of dollars), neither telecom giant did.

“The companies have kept their capital spending relatively flat … and their employee count has dropped by more than 100,000 people – a fifth of their combined work forces, Gryta reported.

Other tax breaks that seem hard to justify:

“Carried interest”: Managers of private equity, venture capital and hedge funds don’t pay ordinary income tax rates on a portion of their income.

Oil and gas tax breaks: According to Arthur Naiman and Mark Zepezauer, authors of “Take the Rich Off Welfare,” energy corporations get more than $2 billion a year.

“Exclusion of capital gains at death”: This provides that if someone receives a bequest of an investment that’s appreciated in value since the day it was purchased, they don’t pay any tax on those capital gains.

Also, according to Loyola University/New Orleans law professor Bill Quigley, “There is a special subsidy for corporate jets, which cost taxpayers $3 billion a year, the tax deduction for second homes costs $8 billion a year, [and] 50 billionaires received taxpayer-funded farm subsidies in the past 20 years.”

Citizens for Tax Justice issued a report, “The Sorry State of Corporate Taxes,” that showed that AT&T, Verizon and three other major corporations – General Electric, IBM and Wells Fargo – received more than $77 billion in tax breaks between 2008-2012.

“Tax breaks claimed by 288 companies are highly concentrated in the hands of a few very large corporations,” the report said. “Just 25 companies claimed $174 billion in tax breaks over the five years.

“The wide variation in tax rates among industries, and among companies within particular industries, gives relatively high-tax companies and industries a legitimate complaint that federal tax policy is helping their competitors at their expense,” the report continued. “Corporate tax payments have fallen dramatically over the last quarter century. So one obvious group of losers from growing corporate tax avoidance is the general public, which has to pay more for – and/or get less in – public services, or else face mounting national debt burdens that must be paid for in the future.”

[PICTURED: Graphic from democraticunderground.com.]