Fiscal Cliff Deal Sneaks In Wall Street Gifts, NASCAR Perk

Source: Huffington Post

The 11th-hour deal to avert the so-called fiscal cliff preserved billions of dollars in corporate tax giveaways even as it slashed take-home pay for millions of American workers. Tucked inside the last-minute fiscal cliff package were more than a dozen tax loopholes, many of which will benefit Wall Street financial firms and some of the nation's biggest corporations. These breaks will cost hundreds of billions of dollars in the coming year, underscoring the lobbying power of corporate interests.

The deal was less kind to the middle class. Congress permitted a cut in the payroll tax to expire, meaning that the tax burden for the average worker will increase about $1,000 in 2013. "This shows that the lobbyists are able to get what they want even when everyone else is starving," said Phineas Baxandall, senior analyst for tax and budget policy at the U.S. Public Interest Research Group. "It also shows they are best able to get what they want when no one else is paying attention."

The corporate loopholes were part of a package of so-called tax extenders tacked onto the main bill. The extenders package, first approved by the Senate in early August, mixes popular benefits, like a deduction for teachers who buy classroom supplies, with corporate-friendly carve-outs, such as the "active financing" exception that permits businesses earning interest on overseas lending to defer U.S. taxes on that income indefinitely. There is even a tax break for construction of new racetracks. The tax extenders were passed for only one year, and they still need to clear another potential hurdle: upcoming negotiations over mandated spending cuts and the debt ceiling. President Barack Obama and congressional leaders have indicated they'd like to see a "grand bargain" on taxes, which would feature lower overall rates but close a slew of loopholes.

The financial services industry, whose leaders had earlier joined a group of other corporate executives pushing for a "fair" solution to the fiscal crisis, is one of the primary beneficiaries of special-interest tax breaks. The active-financing exception, for example, permits banks like Morgan Stanley to avoid the 35 percent U.S. corporate tax rate on interest income from money lent overseas. A handful of other U.S.-based multinational companies with financing arms, such as Ford Motor Co. and General Electric, also use that exemption to lower their tax bills. The two-year cost to taxpayers is an estimated $11.2 billion, according to the congressional Joint Committee on Taxation. U.S. financial institutions argue that the active-financing exemption is necessary for them to compete in overseas markets with foreign banks that carry a lower tax burden. The loophole was repealed in the Tax Reform Act of 1986, but was reinstated in 1997 as a temporary measure after fierce lobbying by multinational corporations.

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