GOP eyes tax breaks, loopholes

Last week’s resounding votes on ethanol subsidies were just the start. Republicans are now starting to eye all sorts of tax breaks and special-interest loopholes once considered sacred cows as they seek ways to increase government revenue without actually raising tax rates.
The targeting of long-protected tax breaks — for ethanol, research and development, manufacturing and foreign company income — is a sign that key House Republicans are ready to break with the orthodoxy of past tax debates while ditching special interests that have long held sway in tax reform discussions.

In going after some of these tax credits, Republicans on the House Ways and Means Committee are proposing a trade-off by lowering corporate and individual tax breaks. And while Republicans would like to keep tax reform discussions separate from the deficit reduction talks led by Vice President Joe Biden, the negotiators may still discuss closing certain tax loopholes.

Some tax breaks, like the depreciation of business equipment, are well known and have large constituencies on Capitol Hill. Others, like the exclusion of interest from state and municipal bonds are more technical, yet still have a powerful lobby that has protected them. Their costs to the Treasury range from a few million to billions.
But GOP insiders are making no mistake about new scrutiny of the long-protected class of tax credits and other breaks: They’re on the chopping block for real now. The ethanol vote in the Senate last week, followed by a less sweeping rollback of certain ethanol benefits in the House, seemed to open the dam for Republicans to discuss tax reform.(See also: Ethanol vote fuels subsidy doubts)
“We have proposed elimination of some tax breaks” during hearings and in informal discussions, said Ohio Rep. Patrick Tiberi , a leading tax reform proponent and chairman of the Ways and Means Subcommittee on Select Revenue Measures. “The process is to build momentum and create consensus.”
And while Republicans have stuck with the talking point that the government doesn’t have a revenue problem; it has a spending problem, GOP leaders have left the door open to finding more money in the tax code.
“We are not opposed to revenues. We are just opposed to tax increases,” Majority Leader Eric Cantor (R-Va.) told reporters.(See also: Cantor, Ryan urge Obama against tax hike)
Complex business tax breaks — some criticized as corporate welfare — may be particularly vulnerable to attack. These provisions typically have had few defenders other than corporate executives who benefit from them and their accountants. They have survived mostly because entrenched business interests have far more at stake than critics seeking to clean up the tax code.
Even the tax-writing committees that created many of these boondoggles are getting into the act, though they have not yet taken legislative action. Right now, the various manufacturing, research and equipment tax breaks — as well as dozens of other more obscure provisions — are merely under discussion.
In embracing a simpler tax code with lower rates, Club for Growth President Chris Chocola welcomed the repeal of the ethanol tax credit as a first step “to ridding the tax code of market-distorting energy subsidies and … a message that Republicans are serious about tax reform.”

Once they actually make it into any real legislation, the battle will begin as each industry lobbies to save its individual tax breaks.

Calman Cohen, president of the Emergency Committee for American Trade, said his roughly 50 corporate members have not spoken as a group on possible repeal of international tax breaks — many of which they have strongly advocated.

“The debate has just begun,” he said. “We need to think overall in terms of the U.S. debt crisis … and a package that will improve our ability to sell the products of American workers around the world.”

All told, the tax breaks under scrutiny could bring in several hundred billions of dollars in revenues. Here are examples of what’s on the chopping block, with cost-savings estimates from the Joint Committee on Taxation:
• Deferral of income for controlled foreign companies ($70.6 billion) is the largest business tax break and a frequent topic of review. Enacted in 1984, the measure was designed to promote exports by multinational firms and responded to other nations’ comparable practices. It has survived partly because international trade experts have raised fears of the adverse impact of rolling it back.
• The manufacturing deduction ($43.2 billion), which has been applied chiefly to oil and gas production activities, has been targeted for repeal by President Barack Obama’s energy policy. Although the administration has abandoned sweeping energy reform, congressional Democrats have sought to increase pressure on Republicans to repeal oil and gas tax breaks. “It’s long past time to turn off the spigot of public funds flowing to Big Oil,” Minority Leader Nancy Pelosi (D-Calif.) told the House last month.
• Accelerated depreciation for capital equipment ($37.1 billion) was designed to boost business spending that kick-starts job creation by expediting the multiyear schedule for depreciation. This tax break has been widely used by major manufacturers and by smaller “pass through” businesses that file individual tax returns. As with other tax breaks that have been designed to create jobs, Rep. Sander Levin (D-Mich.) has cautioned that Congress “should be sensitive to” the impact of tampering with these incentives.
• The research and development tax credit ($25.6 billion) has been a favorite of Democrats and their corporate allies — in Silicon Valley and other parts of the technology industry. Proponents of the credit, enacted as a temporary measure in 1981 and repeatedly extended since then, have sought to expand its reach. “Innovation drives America’s future,” Ways and Means senior Republican Rep. Kevin Brady of Texas said when he filed a bill early this year with Democratic Caucus Chairman John Larson and two California Democrats to make the measure permanent and increase the amount of the credit.
But Boeing executive James Zrust, the company’s vice president of tax, told Ways and Means this month that the company would abandon support for the credit in exchange for lower overall corporate tax rates.
“In return for simplicity, we would like to get rid of the complexity,” he said.

Top Barack Obama donors net government jobs

Telecom executive Donald H. Gips raised a big bundle of cash to help finance his friend Barack Obama’s run for the presidency.
Gips, a vice president of Colorado-based Level 3 Communications, delivered more than $500,000 in contributions for the Obama war chest, while two other company executives collected at least $150,000 more.

After the election, Gips was put in charge of hiring in the Obama White House, helping to place loyalists and fundraisers in many key positions. Then, in mid-2009, Obama named him ambassador to South Africa. Meanwhile, Level 3 Communications, in which Gips retained stock, received millions of dollars of government stimulus contracts for broadband projects in six states — though Gips said he had been “completely unaware” that the company had received the contracts.

More than two years after Obama took office vowing to banish “special interests” from his administration, nearly 200 of his biggest donors have landed plum government jobs and advisory posts, won federal contracts worth millions of dollars for their business interests or attended numerous elite White House meetings and social events, an investigation by iWatch News has found.
These “bundlers” raised at least $50,000 — and sometimes more than $500,000 — in campaign donations for Obama’s campaign. Many of those in the “Class of 2008” are now being asked to bundle contributions for Obama’s reelection, an effort that could cost $1 billion.
As a candidate, Obama spoke passionately about diminishing the clout of moneyed interests. Kicking off his presidential run on Feb. 10, 2007, he blasted “the cynics, the lobbyists, the special interests,” who had “turned our government into a game only they can afford to play.”
“We’re here today to take it back,” he said.
But just like other presidential aspirants, Obama relied heavily on megadonors to propel his campaign across the finish line, and many fundraisers have shared in the spoils of victory.
The White House insisted its appointees are eminently qualified. “In filling these posts, the administration looks for the most qualified candidates who represent Americans from all walks of life,” White House spokesman Eric Schultz said. “Being a donor does not get you a job in this administration, nor does it preclude you from getting one.”
The iWatch News investigation found:



• Overall, 184 of 556, or about one-third of Obama bundlers or their spouses joined the administration in some role. But the percentages are much higher for the big-dollar bundlers. Nearly 80 percent of those who collected more than $500,000 for Obama took “key administration posts,” as defined by the White House. More than half the 24 ambassador nominees who were bundlers raised $500,000.
• The big bundlers had broad access to the White House for meetings with top administration officials and glitzy social events. In all, campaign bundlers and their family members account for more than 3,000 White House meetings and visits. Half of them raised $200,000 or more.
• Some Obama bundlers have ties to companies that stand to gain financially from the president’s policy agenda, particularly in clean energy and telecommunications, and some already have done so. Level 3 Communications, for instance, snared $13.8 million in stimulus money.
The Obama administration has tightened restrictions on hiring lobbyists, but the deference shown major donors contradicts its claims to have changed business as usual in Washington.
“Any president who says he’s going to change this is either hopelessly naive or polishing the reality to promise something other than can be delivered,” said Paul Light, a New York University professor and an expert on presidential transitions. “At best, it’s naive and a little bit of a shell game.”

Barack Obama goes in quest of Hispanic votes

President Barack Obama embarks this week on a pilgrimage familiar to generations of New York politicians, making a rare presidential trip to Puerto Rico that accentuates his campaign’s emerging focus on Hispanics as central to his reelection bid.
Obama’s attention to this subset of the country’s burgeoning Latino population is part of a broader strategy to boost historically low Hispanic registration and turnout in at least a half-dozen crucial swing states, including Florida and North Carolina — two states the president will visit Monday before arriving in Puerto Rico on Tuesday.

No president since John F. Kennedy has made an official visit to the island territory. Obama’s trip ends a drought that could win him some goodwill with mainland Puerto Ricans, whose numbers just happen to be expanding in the swing areas of battleground states. Think of the Philadelphia region and the Interstate 4 corridor towns of Orlando and Tampa in Central Florida.

The microtargeting underscores the Obama campaign team’s effort to build some security into the president’s reelection bid at a time when the economy remains wildly unpredictable. In addition to boosting Hispanic turnout in quadrennial battlegrounds such as Pennsylvania and Florida, the campaign wants to expand Obama’s reach into areas with much smaller, yet fast-growing Hispanic populations, like North Carolina and Virginia, both critical components of the president’s 2012 map.
“Hispanics could very well decide this election,” said one Obama adviser involved in his reelection effort.
The president’s itinerary this week appears to be a natural extension of this strategy.
He will first host a meeting of his jobs council in North Carolina, where the Hispanic population grew by 111 percent since 2000. Obama stops in Miami for three fundraisers before traveling Tuesday to Puerto Rico, where he will commemorate Kennedy’s visit in 1961, meet with Republican Gov. Luis Fortuño and hold a fundraiser.
The island sees the visit as a sign of growing political clout for Puerto Ricans on the mainland, where their numbers increased by 36 percent over the past 10 years. There are now more Puerto Ricans living on the mainland than the island, a migration fueled by a recession that first hit the territory in 2006.
The surge into key metropolitan areas could make the island a stop for politicians from beyond Manhattan, Brooklyn, the Bronx — long the epicenter of America’s Puerto Rican population.
“We don’t see it as something that will have a cotton candy effect, that feels good for a while,” said Andres Lopez, a lawyer in Puerto Rico and a Democratic National Committee member. “The trip evinces a larger trend that will sustain itself over the short and long run, and that is a recognition of the growing importance of Puerto Ricans on the mainland.”
The population jump has been most pronounced in Florida, where the Puerto Rican community grew by 76 percent over the past decade, reaching nearly 848,000 residents and helping tilt the Hispanic electorate toward the Democratic Party in the state. In 2008, for the first time, more Florida Hispanics registered as Democrats than as Republicans. It’s a shift that demographers and political experts say is due in part to the faster increase of Puerto Ricans, who tend to vote Democratic, vs. Cubans, who lean to the GOP.
Some of the largest gains occurred in Orange and Osceola counties, located along the I-4 corridor — the highway that runs through Tampa, Orlando and Daytona Beach, towns where Puerto Ricans are the largest Hispanic group.
Those two counties saw an increase of more than 200,000 Hispanic residents over the course of the decade — an 83 percent jump in Orange County and a 141 percent rise in Osceola. By contrast, the Hispanic population of Miami-Dade County, where Cubans are dominant, grew 26 percent.

The growth of mainland Puerto Ricans is politically significant because, unlike foreign-born Hispanics, they are U.S. citizens who can vote as soon as they put down roots and register. Puerto Ricans who live on the island can participate in the presidential primaries but not the general election.

“Since we are American citizens, the second we move to anywhere in the States, we can vote for the president,” Fortuño said in an interview. “They tend to live in a concentrated area in the Central Florida area — the I-4 corridor has decided last two presidential races in Florida, so that carries a lot of meaning politically as well.”
Since they are U.S. citizens, Puerto Ricans are motivated less by immigration reform than economic issues. That could work against the president, who has sought to use the GOP’s hard line on illegal immigration as a wedge to woo Hispanics. And while they trend Democratic, Puerto Ricans’ votes are no sure thing for the party. Former President George W. Bush and former Florida Gov. Jeb Bush performed well among Puerto Ricans.
Additionally, Republicans won big in Florida in 2010, including the governor’s office and a Senate seat, although in terms of the Hispanic vote, it was largely on the strength of Republican-leaning Cuban voters. There are 1.2 million Cubans and almost 848,000 Puerto Ricans in Florida, according to the latest census figures.
“It’s not necessarily going to [be] the trip to Puerto Rico that stands out in the minds of Puerto Ricans when they go to the polls in November 2012 — they’re going to be looking at pocketbook issues,” said Christopher Maloney, a spokesman for the Republican Party in Ohio, another critical swing state. If the economy doesn’t get better, “they will not vote to reelect Barack Obama. They will vote to elect an alternative candidate who can move the economy forward.”
Maloney said he expects Republicans to challenge Obama for the Hispanic vote by focusing on economic issues.
“If you look at Mitt Romney, Tim Pawlenty — these are governors who have good strong economic records in serving as chief executives of larger industrialized states with large Hispanic communities,” Maloney said.
Massachusetts and Minnesota rank 15th and 25th, respectively, in Hispanic population, according to a Pew Hispanic Center analysis of 2009 census data.
But in a presidential race that may well come down to turnout in a few key counties in a few top-line states, a one-day trip to Puerto Rico could pay off on the margins, particularly among the newer Florida transplants with strong ties to the island, experts said.
“It is apt to have a stronger impact in Florida rather than other Puerto Rican communities,” said Jorge Mursuli, president and CEO of Democracia USA, a nonpartisan Hispanic advocacy group. “People always feel good when you dignify them as a community. I don’t think it’s a substitute for some of the substantive things that Puerto Ricans and other Latinos want, but it still has its positive impact on the community.”