House and Senate negotiators today passed what was intended to be a legislative replacement for a $5 billion illegal export tax break, but has become a $140 billion corporate cash cow stuffed to the brim with hundreds of unrelated giveaways and payoffs. This legislation is an early Christmas gift for corporate fat cats. As the virtual last legislative train leaving Capitol Hill before the elections, hired guns from K Street have hijacked this legislation with a buffet table full of greasy giveaways as part of an effort to squeeze this fat pig through the doors of the Capitol.
Unfortunately, this legislation is a cynical vote buying scheme that relies on spreading the fat to as many congressional districts as possible. The authors of the legislation rationalize this by claiming the bill is paid for. Nothing could be further from the truth. Instead, they have used smoke, mirrors, and fuzzy math to hide the total cost that our grandchildren will bear for decades to come.
There is one small pearl in this pile of pork. The Conference agreed to shrink a small business tax deduction for large Sport Utility Vehicles from $100,000 to $25,000. While this hummer of a tax break needs to be run over and killed, shrinking it is a good first step. While the tax treatment of vehicles is still inequitable, lawmakers did the right thing in trying to limit one of the most outrageous loopholes in the tax code.
The following are examples of provisions in the bill:
1. Ceiling Fans - $44 million
Suspends a $4.7% duty on ceiling fans, which Home Depot is one of the main beneficiaries. This is for any ceiling fans purchased before 12/31/2006
2. Charitable contributions deduction for certain expenses in support of native Alaskan subsistence whaling - $4 million
3. Green Bonds - $231 Million
Provision would allocate $231 million in taxpayer funds to finance $2 billion in bonds for four "Green Bond" mall developments. The following are the four malls:
Destiny USA - Syracuse NY
The $2.2 billion entertainment and retail development is touted as an economic stimulus for upstate New York. Supporters of the proposal include Gov. George Pataki and other NY legislative leaders. The developer, Pyramid Co., would commit to 3.2 million square feet, which would translate to a price of close to $700 per square foot. Pyramid officials last year estimated that green bonds could save them at least $100 million.
The Mall of America, biggest shopping emporium in the United States, is now valued at $700 million or about $170 per square foot. As a side note, Pyramid Co. has a checkered past; recently it was charged for using a phony city tax bill to overcharge tenants by $800,000 at other shopping facilities.
Governor Pataki has said that Destiny USA would make Syracuse a leader in developing indoor environmental technologies and cited Destiny USA's use of "green" environmental standards. Rep. James Walsh, R-Onondaga, has been the champion for this project in the House. Rep. Walsh went to bat for Destiny in a meeting early this year with Ways and Means Chairman Bill Thomas.
Earlier this year, Destiny execs Matt. Chadderdon and Rich Piertrafesa said they've been told the legislation could be attached to any number of other tax "vehicles" heading through Congress this year. As part of their lobbying effort, Destiny developer Robert Congel last year launched a political action committee to support influential members of Congress. The only contributions to the Green Worlds Coalition Fund to date have been $5000 each from Congel, his wife, Suzanne, and Destiny executive Rich Pietrafesa. The PAC also spent $1000 to rent a mid-Lakes Navigation boat that Sen. Charles Schumer (D-NY) used last August for a local fund-raiser on Onondaga Lake.
Destiny USA intends to build a refinery near the lakeside area once known as Oil City, but this new facility would be free of petroleum-based products. The refinery would transform crude soybean oil into biodiesel fuel, a clear-burning, 100 percent renewable source of energy.
The soybean-based fuel would operate four diesel engines, which in turn would run a generator producing electricity for the $2.2 billion entertainment and retail complex.
Riverwalk Development - Shreveport, LA
The $150 million Riverwalk will feature about 50 stores, restaurants and clubs on the Bossier City riverfront, as well as a 14-Screen Regal Cinemas, a bowling alley, a recording studio, a 1912 trolley and more. Bass Pro Shops Outdoor World stands as the anchor tenant on the north side of the project. The 106,000 square foot store features fishing, hunting, camping, boating, and other outdoors clothing, anchored by a 13,000 gallon aquarium. It will also offer live performance theaters, theme restaurants, hotels and other recreational passive types of outdoor entertainment.
The outdoor seating at Riverwalk will capitalize on the riverfront location, allowing visitors to play or picnic on the grass by the river. Live oaks, Bradford pears, Buford holly, crape myrtles, boxwoods, annuals and many other trees and plants will stand along the riverfront walkway and throughout the center. There will be fans throughout the center, along with awnings and shady trees to help keep visitors cool as they walk from place to place. Outdoor fireplaces will help them stay warm in the winter. Perhaps the tax break awards their creation of shade.
Bass Pro Shops is the anchor tenant of the $150 million Louisiana Riverwalk, which aims to open about 50 shops, restaurants and clubs by late 2004, including a Hooters restaurant and Chico's clothing. Other firm commitments to the development include a comedy club, daiquiri bar, three clothing stores and a dance club, according to John Good Jr., a local developer involved in the project. O&S Holdings, a Los Angeles Firm is partnering with Mr. Good on this project.
Belmar - Lakewood, CO
Green bonds are also proposed for Belmar, the $500 million redevelopment of Lakewood's former Villa Italia mall, which will include forty-four restaurants, clothing stores, specialty shops and offices.
Among the retailers that have signed on to occupy the first 650,000 square feet of retail space are Coldwater Creek, DSW Show Warehouse, Galyan's, Pier 1 Imports, Yankee Candle Co. and White House/Black Market. Restaurants will include Baja Fresh, Ben&Jerry's, Johnny Rockets, Home Restaurant, and a coffee shop called Liquid.
To that end, Belmar will include a mix of shops, offices, restaurants and homes including 180,000 sq. feet of offices, 130 housing units and 2 parking garages. The project will eventually include 1.2 million squarefeet of retail space, 800,000 square feet of offices, a hotel, about 1300 townhomes, condos and apartments, and 9000 parking spaces.
Atlantic Station - Atlanta, GA
The Atlantic Station project is a 138-acre redevelopment of the former Atlantic Steel Mill in midtown Atlanta. When completed at the end of next year, it will include 12 million square feet of retail, office, residential and hotel space and 11 acres of parks.
The site is a former brownfield site in midtown Atlanta. IKEA, the Swedish home furnishings retailer is planning to build a two-story, 366,000 sq. ft. store on a 15-acre site located at the western edge of the urban redevelopment project. The Atlanta store will be IKEA's first in Georgia.
IKEA's announcement in mid-September helps fill a major void at Atlantic Station. Last year, preliminary plans to build a 250,000 sq. ft. aquarium on the same site were scrapped when financial backers opted to construct the aquarium next to Centennial Olympic Park.
4. Dog and Horse Race Provision - $27 million
This tax break was included to lure more foreigners to gamble at U.S. horse and dog racing establishments. The National Thoroughbred Racing Association has advocated that the United States should eliminate a 30 percent tax for foreigners who bet on American horse races.
5. Tax Break for Shipbuilders - $495 Million
A provision championed by Sens. John Breaux (D-LA) and Olympia Snowe (R-ME) was inserted that allows shipbuilders such as Northrop Grumman to use a different accounting technique, which allows for enhanced tax treatment.
6. Treatment of aircraft leasing and shipping income - $995 million
This provision would exempt income from the active conduct of an aircraft or vessel-leasing business from Subpart F under both the foreign base company shipping income rules and the foreign personal holding company rules. Shipping and aviation interests would benefit from the provision.
7. Cruise Ship Tax Break (Section 423) - $28 million
Sens. Lisa Murkowski and Bob Graham added a provision that would provide the cruise industry a delay until after September 24, 2004 in paying taxes on the airplane tickets, hotels, and other excursions it sells in the United States. The tax delay would save Carnival Corp $15 million and Royal Caribbean would save $8 million to $10 million, according to the Anchorage Daily News.
8. Tax break on Archery products (Section 322) - $9 million
U.S. arrow makers now pay a 12.4 percent tax on arrow components manufactured in the United States. But arrow parts imported from overseas are not taxed. The measure would also eliminate the current 11 percent tax on so-called youth bows that are not powerful enough to be used in hunting. The current excise tax on broadheads, razor-sharp devices that can be attached to the tips of arrows, would be reduced from 12.4 percent to 11 percent. This provision taxes all (foreign and domestic) arrow parts at 12.4 percent. Senate sponsors of similar legislation include Max Baucus, D-Mont., and Orrin G. Hatch, R-Utah. The house champion is Rep. Paul Ryan (R-WI).
9. Fishing tackle boxes - $11 million
This provision would reduce the excise tax on fishing tackle boxes to 3% from 10%. One of the biggest beneficiaries will be Plano Molding Co. of Illinois. The company, headquartered in House Speaker Dennis Hastert's district, has been making plastic fishing-tackle boxes for more than 55 years. In 1984, Congress created a special fund to help restore waterways and improve fishing. An 11 percent excise tax on fishing equipment, including tackle boxes, provides money for the fund.
Since Congress imposed the tax, sales of tackle boxes have dropped from a high of 60 million annually to 48 million, while sales of utility boxes have gone from zero to 100 million. A strong supporter of this provision is Rep. Jerry Weller (R-IL) a Ways and Means Committee member. Plano has three plants in Weller's district, and employs hundreds of workers.
10. Repeal excise tax on sonar devices suitable for finding fish (Section 324) - $4 million
LED devices exempted from sonar devices suitable for finding fish. Not only are there tax breaks for catching fish, there's a tax break for finding the fish as well.
11. Bonus depreciation of certain aircraft (Section 326) - $247 million over five years
Enhanced depreciation provisions to help producers of small jets and planes, 60% of which are built in Kansas. Some of the companies that benefit include Lear Jet and Cessna. The provision modifies the definition of qualified property. The new definition requires that the aircraft's total cost exceed $200,000 and its development time exceed 4 months. The Internal Revenue Code provides that aircraft owners depreciate aircraft over a five-year life, while commercial operators must use a seven-year life. In the year of acquisition, an aircraft owner is normally entitled to depreciate the aircraft as though he or she acquired it in the middle of the year.
12. Special rules for livestock sold on account of weather-related conditions - $27 million
At the request of Sens Daschle (D-SD) and Thomas (R-WY), this provision provides tax-free treatment if farmers replace livestock because of drought, flood and other weather related conditions.
13. Deduction for the first $10,000 of qualified reforestation costs - $64 million
A giveaway to the timber industry
14. NASCAR tax break - $101 million
Track owners have been battling the IRS over the tax treatment of their facilities, which defines how quickly they can write off grandstand facilities. Sen. Jon Kyl (R-AZ) is the champion of this provision. This legislation allows them to write off facilities in seven years.
15. Attorney fees tax break - $327 Million
This break establishes costs incurred as a result of attorney and court costs paid to prosecute a claim of unlawful discrimination as a tax deduction.
16. Tax break for shipping companies - $57 million
Allows shipping companies to pay a tax based on the weight of items they ship, instead of paying the normal corporate income tax.
17. A Tax Credit for 50% for the maintenance of railway tracks - $501 million
This tax credit for railroad maintenance is not to exceed $3,500 a year and applies to class II and class III railroads, which are railroads with total revenues under $256.4 million, which are owned or leased by 2005. It was heavily lobbied for by the American Short Line and Railroad Association and other railroad industry lobbyists.
18. Brownfield tax break - $185 Million
This helps investors that invest in cleaning up Brownfield sites. The provision makes gains and losses on the sale or exchange of Brownfield properties (potentially environmentally contaminated properties) exempt from taxes on that sale. The property must first be certified by an appropriate state agency.
19. Tax break for Hollywood - $336 million over five years
Allows studios to expense up to $15 million in the first year of production of small and independent films in the United States. Studios could expense an additional $5 million if a significant amount of production expenditures are incurred in low-income communities or in the Delta Regional Authority. The Delta Regional Authority includes counties in Alabama, Arkansas, Illinois, Kentucky, Louisiana, Mississippi, Missouri and Tennessee. Hollywood also benefits from the new manufacturing tax break as well. This sunsets 12/31/08.
20. Suspension of the occupational taxes relating to distilled spirits, wine and beer - $234 million
Under the proposal, the special occupational taxes on producers and marketers of alcoholic beverages are suspended for a three-year period, July 1, 2005 through June 30, 2008.Present law recordkeeping and registration requirements will continue to apply, notwithstanding the suspension of the special occupation taxes.
21. Limitation of Withholding on U.S.-Source Dividends Paid to Puerto Rico Corporation - $99 million
The proposal lowers the withholding income tax rate on U.S. source dividends paid to a corporation created or organized in Puerto Rico from 30 percent to 10 percent, to create parity with the generally applicable 10 percent withholding tax imposed by Puerto Rico on dividends paid to U.S. corporations.
22. Alaska Pipeline (Sec. 706)
This proposal would treat Alaska natural gas pipelines that have a capacity of more than 500 billion Btu per day as 7-year property with a class life of 22 years. This section particularly deals with pipelines either placed in service after December 31, 2013 or the taxpayer elects to treat it as placed in service after this date.
JCT estimate -$150 million
23. Enhanced Oil Recovery Credit (Sec. 707)
Under this provision, construction costs for an Alaskan (north of 64th degrees North latitude) natural gas processing plant that can process 2 trillion Btu a day are eligible for the enhanced oil recovery credit. The effective date is for expensing incurred after 2003.
JCT estimate - $295 million
24. Section Credit for Electricity Produced from Renewable Sources (Sec. 711)
This provision expands the section 45 credit for electricity produced from renewable sources to include municipal waste incineration, refined coal, open-loop biomass, geothermal energy, solar energy, and small irrigation. A refined coal "spray and pray" facility must produce a fuel that produces steam to create electricity and be placed in service between the date of enactment and before January 1, 2009.
JCT estimate -$2.278 billion
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