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During the “fiscal cliff” debate, the White House justified raising taxes on the rich to ensure people “pay their fair share.”
But the beneficiaries were hardly the poor and dispossessed.
Instead, President Obama raised taxes on the rich to fund corporate welfare, with General Electric likely the biggest winner.
Obama’s income tax hikes will raise $22.5 billion this year (compared with extending all the Bush tax cuts), while the special-interest business and energy tax credits he demanded will reduce revenue by $65.3 billion, according to data from the Joint Committee on Taxation.
Republican sources told me and other reporters that the White House “absolutely insisted” on loading up the fiscal cliff deal with a package of targeted tax break extensions that had passed the Senate Finance Committee in August. The White House did not respond to a string of phone calls and emails seeking confirmation, denial or clarification.
When White House press secretary Jay Carney returned from vacation Monday, he mostly dodged a question on the tax credits:
“Well, you’re assuming that what you’ve been told is correct,” Carney said, not refuting the claim that the White House insisted on the tax breaks. He noted that Republicans supported these tax breaks, too — only five of 12 Republicans on the Finance Committee voted against the package in August.
Carney’s full answer focussed primarily on green energy tax breaks, such as a tax credit for wind turbine manufacturers: “If this key support had been allowed to expire … as many as 37,000 clean-energy jobs could have been lost.”
The legislation prevented the expiration of the production tax credit for wind energy, but it also expanded the broader renewable-electricity tax credit to include all projects under construction in 2013 (as opposed to projects in service in 2013). These provisions will reduce federal revenue by $116 million in 2013, and then larger amounts in later years.
The bill included far bigger tax breaks that Carney didn’t address. Special tax breaks for film and television production will lower Hollywood’s tax bill by $266 million this year. Tax breaks just for producing rum in Puerto Rico and the U.S. Virgin Islands will reduce 2013 federal revenue by $199 million.
But towering over the tax breaks for wind, rum, Hollywood or NASCAR — and undermining Obama’s populist rhetoric — is the $9.4 billion tax break for multinational corporations with offshore financial subsidiaries. The provision is known by a fittingly convoluted name: “the active financing exception to subpart F.”
Ronald Reagan’s 1986 tax reform closed some loopholes that allowed corporations to move profits offshore for tax purposes. A decade later, though, Congress created a special carve-out for offshore financial subsidiaries — the “active financing exception” to laws restricting the use of offshore tax shelters.
The fiscal cliff legislation extended this exception, which otherwise would have expired, thus eating up nearly half of Obama’s tax hikes on the rich.
Nevertheless, on New Year’s Eve, before a human backdrop of “middle-class Americans,” Obama touted the cliff legislation while saying he wanted to ensure “the biggest corporations can’t take advantage of loopholes and deductions that aren’t available to most of the folks standing up here.”
Well, Mom and Pop aren’t exactly using the active financing exception to subpart F. Lobbying filings show that the issue mattered the most to the likes of Goldman Sachs, Bank of America and General Electric.
Perhaps the biggest patron of the active financing exception is Obama-friendly GE. When the company paid $0 in U.S. corporate income tax on $5.1 billion in U.S. profits in 2011, this exception was a major reason. The New York Times reported at the time: “Stock analysts estimate the tax benefit to G.E. to be hundreds of millions of dollars a year.”
Obama, in his New Year’s Eve address, lamented a tax code that rewards those “companies with a lot of lobbyists.” GE’s $120 million lobbying tab in the Obama administration is more than any other corporation’s. A big chunk of that lobbying budget was dedicated to preserving this offshore financing rule, federal filings suggest. GE paid former Sens. John Breaux and Trent Lott $50,000 a month in 2012 for lobbying that included the “active financing” extension. Three other lobbying firms reported working the issue for GE.
So, if you ignore the rhetoric and study the math, you see Obama raised taxes on the rich so that he could afford to cut taxes for GE.
Timothy P.Carney, The Examiner’s senior political columnist, can be contacted at [email protected] His column appears Monday and Thursday, and his stories and blog posts appear on washingtonexaminer.com.
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