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| The Basics | Bush signs big fat tax bill
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The tax-break gravy train has something for everybody -- only yours is more likely to be a call from a debt collector than a billion-dollar handout.
By Rick VanderKnyff, MSN Money
Multinational corporations. Makers of ceiling fans, archery equipment, sonar fish finders and tackle boxes. Owners of NASCAR tracks, growers of tobacco and makers of movies.
If you count yourself among one of the above groups, rejoice. You are a likely beneficiary of the fat new $140 billion tax bill signed into law Friday by President Bush, the most sweeping rewrite of the corporate tax code in decades. If you are an average consumer, though, what you get in this feeding frenzy is mostly crumbs -- plus the chance to be hassled by tax collectors who aren't even from the IRS.
The law started as arcane bookkeeping, a way to repeal tax subsidies declared illegal by the World Trade Organization and make up for them with tax breaks. It grew to 650 pages and, by one count, 276 special-interest tax breaks by the time it made its way through an election-year Congress looking to make hometown voters happy.
The bill drew fire during its journey through Congress from Republican Sen. John McCain, R-Ariz., ("the worst example of the influence of special interests that I have ever seen") and Democratic Sen. Edward Kennedy, D-Mass., ("on issue after issue in this legislation, elite corporate interests are the winners at the expense of average Americans''). Presidential candidate Sen. John Kerry, D-Mass., missed the vote because he was campaigning in Kentucky.
Taxpayers for Common Sense, a national watchdog group, aimed a few salvos of its own, saying the law will blow a crater-sized hole in the federal deficit. The New York Times called it truly terrible tax policy.
So, whats in it for you?
While most of the law is aimed at businesses, it does have at least one provision that will help some ordinary taxpayers. If you happen to live in one of seven states with no income tax, you now can deduct the sales taxes you pay, at least for the next two years. That puts taxpayers in these states on even footing with the rest of the country, where state income taxes are deductible on federal returns.
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Meanwhile, a couple of provisions of the euphemistically named American Jobs Creation Act of 2004 actually roll back options for consumers to help pay for the new corporate tax breaks.
It tightens the infamous tax loophole for luxury SUVs. Beginning in January, the law that allowed business owners to deduct up to $100,000 as a business expense (saving as much as $35,000 on taxes) applies only to vehicles weighing 14,000 pounds or more. This would protect most business-use heavy trucks or vans, such as refrigerated trucks. Anything smaller -- and yes, the Ford Excursion and Hummer H2 are smaller -- would be deductible up to $25,000 (for a potential tax savings of $8,750). The government would save $372 million over the next three years.
It toughens the tax rules for donating a vehicle to charity. Widespread cheating (by those who donate, say, a $500 Yugo to a charity but claim it's worth $1,500) has led to new rules that begin in January. If the charity receiving the vehicle sells it, the donor can claim only what the charity gets for it. But if the charity uses the vehicle in its good works, the donor is entitled to fair market value.
Perhaps most ominous, at least in the eyes of consumer-rights advocates, is a provision sought by the Bush administration that allows private debt collectors to get in on collecting overdue federal taxes -- for a 25% cut of the collected debt. The government expects to collect an additional $1.4 billion over the next 10 years and pay collection agencies $339 million over that period for hauling it in.
Critics of the concept warn of the potential for overly aggressive tactics and the possible compromise of personal data. (Learn about your options if contacted by a private tax collector here.)
And the winners are . . .
U.S. producers: The centerpiece of the tax law, intended to replace the $50 billion in repealed subsidies, provides tax deductions that would effectively lower the corporate income tax rate from 35% to 32% for U.S. "producers."
The newly defined category includes traditional manufacturers covered by the original subsidy, along with such newcomers as architectural and engineering firms, extractors such as timber companies and oil and gas drillers, movie studios and more. Price tag: $76.5 billion over 10 years.
Multinational corporations: The law declares a one-year tax holiday for multinationals, one in which hundreds of billions of dollars in profits currently parked overseas can come back to the United States at one-seventh the usual tax rate (5.25% instead of the 35% top corporate rate).
The law's backers say all that returning capital will lead to job growth, but the Wall Street Journal reports that most companies (pharmaceutical and technology companies are big beneficiaries) are more likely to use the money to tweak their balance sheets and reduce debt.
Professional golfers: The tax bill tightens the rules on deferred compensation plans in the wake of scandals involving executives of Enron and WorldCom (now MCI). There is curious exemption, however, for plans involving organizations incorporated on July 2, 1974. That happens to cover the nonprofit PGA Tour Inc.
That means the lucrative pension plans enjoyed by many professional golfers are unaffected by restrictions in the new bill involving such items as early withdrawals. Just how lucrative are these plans? According to a survey cited by the Wall Street Journal, a golfer who plays 17 seasons can earn a nest egg of $43 million -- even if he never wins a tournament.
Tobacco growers -- and big tobacco companies: The law includes a $10 billion industry-financed buyout for tobacco farmers. The buyout would end decades of leaf production under a Depression-era quota system that kept prices artificially high and put U.S. growers at a disadvantage.
In the Senate version of the bill, the buyout was tied to a provision providing federal regulation of tobacco products, but the provision was removed in committee.
Hollywood: Lawmakers included a $336 million tax break over five years to encourage studios to make movies in the United States rather than inexpensive overseas locations. Tax breaks would be even bigger if they film in low-income parts of Alabama, Arkansas, Illinois, Kentucky, Louisiana, Mississippi, Missouri or Tennessee.
Home Depot: How does a tax law ostensibly designed to aid American manufacturers end up eliminating $44 million in tariffs on Chinese makers of ceiling fans? Like this, according to The New York Times:
Home Depot sells half of the ceiling fans in America. Home Depot is based in Atlanta. Sen. Zell Miller happens to hail from Georgia. Sen. Charles E. Grassley, sponsor of the bill, needed Millers vote. . . . Can you guess the rest?
On its Web site, Taxpayers for Common Sense lists these as examples of special-interest beneficiaries of the corporate tax law.
Mall builders: The tax law allocates taxpayer funds to finance $2 billion in bonds for four "Green Bond" mall developments in New York, Louisiana, Colorado and Georgia. Price tag: $231 million.
Owners of horse and dog racetracks: The law eliminates a 30% tax on winnings for foreigners who bet on American horse and dog races. Price tag: $27 million.
Shipbuilders: The legislation allows shipbuilders such as Northrop Grumman to use a different accounting technique and reduce their tax bills. Price tag: $495 million.
And the list goes on: Railroads ($501 million), trial lawyers ($327 million), archery product makers ($9 million), fishing tackle box makers ($11 million), makers of sonar devices suitable for finding fish ($4 million).
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