You may have heard news stories claiming that pork-barrel spending and special interest “earmarks” had been included in the financial stabilization bill as a way to “buy” the votes of Senators and House Members for the measure. The stories are not accurate.
What they are referring to is a bill dealing with taxes that was combined with the stabilization bill; but the tax bill had nothing to do with pork-barrel spending. In fact, it included many provisions that would reduce taxes. Let me explain why the Senate included tax provisions in the financial stabilization bill, tell you more about what those provisions would do, and then let you judge for yourself whether they constitute “pork.”
First, it’s important to note that, while most provisions of the tax code are permanent, a number, including many that cut taxes, are temporary and must be extended by Congress when they are about to expire. Some of the better known temporary tax provisions include marriage-tax penalty relief, the $1,000 child tax credit, and lower tax rates on capital gains and dividend income. Those are now in place through 2010. But other temporary provisions expire sooner – in fact, some of them lapsed this year. Without congressional action, the taxpayers who benefit from these tax deductions and credits will see their taxes go up when they file their federal tax returns next April.
Expiring provisions are routinely extended in what are known as annual “tax extender” bills. Every year since 2001, such legislation has also been used to prevent the Alternative Minimum Tax (AMT) from hitting millions of middle-income taxpayers. As you may know, the AMT was enacted in 1969 as a way to prevent the very wealthiest taxpayers from using legitimate deductions to zero out their income-tax liability. Because the AMT exemption levels and brackets are not indexed for the effects of inflation (as the regular tax code is), the AMT applies to more and more taxpayers down the income scale every year.
Most in Congress agree that the AMT is hopelessly broken and must be reformed dramatically or, better yet, repealed. In fact, Congress voted to repeal the tax in 1999, but President Clinton vetoed the bill. So Congress has resorted to making temporary changes in the AMT exemption amounts (as well as other minor AMT provisions) in its annual tax extender bills. The AMT relief provided in this year’s bill will prevent as many as 25 million taxpayers – some earning just $50,000 a year – from being hit by this pernicious tax which would amount to an additional $2,000 per taxpayer.
The Senate passed its routine package of tax extenders and AMT relief on September 23 by a vote of 93 to 2. Unfortunately, differences with the House Majority, which sought to include a broad range of tax increases along with the extensions of current law, had prevented a final bill from passing. And with Congress poised to adjourn for the November elections, time to pass the tax relief was quickly running out.
The financial stabilization bill clearly had the votes to pass the Senate with or without the tax extenders and AMT relief. Its approval was never in doubt. But by adding the Senate’s tax bill to the financial rescue legislation, we had the chance to ensure that the extenders were enacted in time to prevent higher taxes during next year’s tax-filing season, and, more importantly, provide individuals and businesses with additional certainty about their tax liability at a time of economic turmoil. We also had the chance to avoid the tax increases that the House Majority had sought to add with its version of the extenders bill. So the two bills were combined.
Now let me get a bit more specific about what was included in the Senate’s tax package.
In addition to the AMT relief, the legislation extends a number of tax deductions and credits for renewable-energy projects. For example, it extends a wind-power credit for one year, extends geothermal and biomass energy credits for two years, and provides incentives to the solar industry – such as the removal of a $2,000 credit cap for residential solar installations – for eight years. One of the solar energy tax credits will help Arizona utilities meet state requirements to generate a certain amount of electricity with solar energy.
Another section of the bill extends a number of business tax provisions that were otherwise set to expire, including one that allows restaurant and retail businesses to deduct the cost of improvements in their properties over 15 years instead of the 39.5 years under previous law. Most businesses probably update their facilities two or three times within a 15-year period, so I would argue that something even shorter than 15 years would be appropriate. Moreover, given that many restaurants don’t even survive as long as 39 years, reducing the period over which they can deduct the cost of improvements better reflects the reality of their operations and, in my view, represents good tax policy. Other operations (one mentioned in the media was racetracks) receive similar treatment.
The media have singled out a handful of other provisions for particular criticism without fully explaining the rationale for including them. While the merits of these provisions might be debatable, each cuts taxes – and none triggered a Senate rule that had recently been tightened to make it harder to pass tax provisions that benefit only a limited number of people.Let me discuss a few of the ostensible “pork” provisions mentioned by media. One is a section of the bill that exempts certain wooden arrows from a federal excise tax. Federal law imposes an excise tax on archery equipment to help fund hunting programs on federal lands. It may make sense to apply this excise tax to the vast majority of archery equipment, but certainly not to wooden arrows used by children. The tax is currently set at 39 cents per arrow, but the arrows cost only 30 cents apiece. The tax more than doubles their cost. While one can argue about whether there should be a tax and what the correct tax rate ought to be, setting a tax rate hardly constitutes pork-barrel spending or an earmark.
Another provision highlighted in news stories deals with rum produced in the Virgin Islands and Puerto Rico. The U.S. currently collects an excise tax on rum imports (I suppose to protect local rum producers, but it results in higher costs for American consumers). Since the Virgin Islands and Puerto Rico are U.S. territories, the U.S. has, since 1986, refunded to the territories a share of the excise tax receipts collected on the products they ship to the mainland. The extenders bill simply continued the existing practice. Again, we can debate whether it is appropriate to continue the rebate (which seems fair to me), but it is not accurate to call this an unusual provision or something that Congress tried to hide, because it is something Congress has extended year after year without controversy.
A final example: the bill extends tariff relief on wool products that are not produced in sufficient quantities in the U.S. to meet domestic needs. The bill simply maintains the existing tariff that keeps prices low for U.S. consumers, keeps U.S. manufacturers competitive, and keeps jobs in the U.S. As I said earlier, I believe in keeping all tariffs low and eliminating them where possible so that Americans can have access to lower cost goods – something that is especially important in these trying economic times.
Reasonable people may differ about whether it was appropriate to include the latter three provisions in the bill, but combined, they account for just three-tenths of one percent of the tax relief that would be provided – an amount too small, in my opinion, to justify voting against the entire bill, particularly considering the many other good tax provisions that were included. Incidentally, all three of the provisions were included in the version of the extenders bill that had already passed the Senate in September by the vote of 93 to 2. So they were not something new that was added to “buy” votes for the financial stabilization bill.
I regret that some of my conservative friends perpetuated the myth about pork-barrel spending. There are enough legitimate points of disagreement about the legislation to obviate the need to resort to that kind of disinformation. But, I suppose it’s easier than debating those other questions on the merits. If you wish to share any comments or questions, please click here.
Sincerely,
JON KYL
United States Senator