On Tuesday the House Ways and Means Committee sent a package of bills to the House floor, that would cost American taxpayers hundreds of billions of dollars over the next ten years by making permanent tax provisions multinational corporations use to avoid U.S. tax.
“For all of the talk in Washington about getting our fiscal house in order, the Committee did not consider how to pay for these expensive tax breaks," said Dan Smith, U.S. PIRG Tax and Budget Advocate, "despite repeated attempts by Ranking Member Sandy Levin to raise the issue."
H.R. 4429 would re-enact the currently expired "active financing" provision, and make it permanent. This provision is known as the "GE" loophole, because General Electric (NYSE: GE) not only prodigiously benefits from it, but also because the company has sent an army of lobbyists to ensure the provision was re-enacted. (It expired at the end of last year.)
Making the GE loophole permanent would cost nearly $60 billion over ten years, according to the Joint Committee on Taxation. The relevant Senate Committee took a slightly different approach, sending a two-year extension to the Senate floor that would cost "only" $7 billion. Another bill that cleared committee Tuesday was H.R. 4464, which would re-enact the "CFC look through" rule and make it permanent.
This provision is known as the Apple (NASDAQ: AAPL) loophole, because Apple innovated it and uses it to protect billions it would owe U.S. tax on if the tax code looked at where the money was earned--where the value was actually generated--rather than where companies can assign the profits. Making the Apple loophole permanent would cost .3 billion over ten years, according to the Joint Committee on Taxation.
The Senate bill, since it would extend the provision for two years, would cost "only" $2 billion. "While Wall Street banks, tech giants, and pharmaceutical companies would get a windfall from these loopholes," Smith added, "average taxpayers and small business owners would get stuck footing the bill through cuts to public programs, higher taxes, or a larger deficit."
Two other corporate tax cuts that cleared committee Tuesday were not about tax havens, however, they reflected other problematic policies. One is called the "Research Credit." As Steve Wamhoff, Legislative Director for Citizens for Tax Justice, explained, "The so-called research credit does not encourage research. Congress should not re-enact it, much less make it permanent until it addresses the problems so that it actually encourages research."
If the House gets its way, the "Research" Credit would cost 5 billion over 10 years. Again, the Senate is considering a two-year extension of a slightly different version of the credit, which also does not address the issues that concerns Wamhoff.
The last and arguably least problematic tax cut bill to clear committee Tuesday aims to inspire smaller businesses to invest in their businesses by making the tax treatment of such investment more favorable. But, Wamhoff says, "I do not expect it to encourage investment or help grow the economy. We work with some small business folks, and they say what will get them to invest is more customers, not more tax breaks."
The smaller business tax cut would cost billion over 10 years. Wamhoff, like Smith, praised Michigan Democrat Sandy Levin: "Under Levin's leadership," Wamhoff said, "even those Democrats who support the tax breaks decided that if the country couldn't afford to deficit finance unemployment insurance and food stamps, it couldn't afford to deficit finance these tax breaks."
Unfortunately for taxpayers, House Republicans didn't agree and sent these bills to the House floor.
Note: the original version of this article incorrectly identified the committee as the House Financial Services Committee
- Benzinga's M&A Chatter for Monday April 28, 2014
- Alstom Prefers General Electric's Bid To Siemens'
- A Big Week for Economic & Earnings Data - Ahead of Wall Street
© 2014 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.