TAX NEWS - June 2010

United States Tax: Senate cuts to recession relief bill favor special interests

Leaders target funding for unemployment benefits, Medicare and Medicaid — but neither party has suggested trimming more than 60 tax breaks worth $32 billion to special interests.

As the Senate scrambles to scale back a $140-billion recession relief bill, the poor, the elderly and the unemployed are bearing the brunt of the squeeze. But NASCAR track developers, movie producers and other special interests are likely to escape unscathed.

Those businesses stand to gain $32 billion in tax breaks as part of the bill, which has been stalled for weeks because of rising complaints about deficit spending.

In the hunt for ways to cut costs, neither party has proposed curbing the panoply of narrow tax preferences, which Congress has routinely extended each year.

Instead, Senate leaders have proposed a $25 cut in weekly unemployment benefits; temporarily allowed a 21% cut in Medicare fees for doctors; and are planning to withhold or scale back $24 billion in payments many states expected to help pay for Medicaid for the poor.

Democratic leaders, who failed last week to break a Republican filibuster of the bill, juggled those options behind closed doors Tuesday in hopes of passing the bill before week's end. Although the final shape of the bill remained in flux, there is little doubt that the tax breaks — more than 60 of them — will be part of it.

Republicans are backing an alternative that cuts deeper into spending than Democrats want, but they kept the entire package of tax breaks. Not including them "would raise taxes on a whole host of businesses, industries and individuals at a time when they are struggling through tough economic times," said Kyle Downey, spokesman for Sen. John Thune of South Dakota, a GOP leader who introduced his party's alternative bill.

In both Democratic and Republican versions, the tax breaks are linked to tax increases and spending cuts so proponents can say the deficit is not increased. But with pressure mounting on Congress to rein in the budget deficit, scrutiny is increasing. Skeptics argue that the economic benefits are unproven and make a mockery of the bill's title, the American Jobs and Closing Tax Loopholes Act.

"There is little or no evidence that any of these goodies have ever created jobs," said Howard Gleckman, a senior fellow at the nonpartisan Tax Policy Center, a research group affiliated with the Brookings Institution and the Urban Institute in Washington. "It is hard to be too cynical about tax extenders that have reached a state of near-immortality. But the least Congress could do is call this annual rite what it is: continuing tax loopholes, not closing them."