Senate cuts to recession relief bill favor special interests

Reporting from Washington —  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.”

At issue are dozens of tax credits, deductions and other write-offs that have been in place for years but approved for only one year at a time. The largest among them is the credit for business spending on research and development — an idea that enjoys bipartisan support, and that accounts for $6.7 billion of the $32-billion price tag.

The rest are narrower in focus: tax credits for makers of biodiesel fuel; tax breaks for restaurant improvements; and write-offs to encourage movie producers to film in the U.S.

The breaks are not all business-oriented: The bill also includes deductions for schoolteachers’ classroom-supply purchases, and tax credits for community development in low-income neighborhoods.

These breaks have escaped budget scrutiny in part because, taken individually, many of them lose relatively small amounts of revenue. But taken together they are a potent package of sweeteners that help draw support for any bill they are linked to. They were packaged with the 2008 law that provided $700 billion to bail out the troubled financial industry, a hugely controversial bill that was rejected by the House before the tax extensions were folded in.

By approving these breaks one year at a time, Congress in theory has a chance to review their effectiveness before renewing them. In practice, they are passed with little debate. Lawmakers shy away from making the provisions permanent or longer-lasting because the cost would be prohibitive.

“To make all these permanent over 10 years would cost hundreds of billions of dollars. It’s easier if you only do it one year at a time,” said Kenneth Kies, former chief of staff of Congress’ Joint Committee on Taxation.

On paper, the tax extenders in the bill passed by the House cost $28 billion in 2010-11, and only $32 billion over 10 years. That is because it assumes the tax breaks will expire after 2011.

Robert Bixby, executive director of the Concord Coalition, a budget watchdog group, estimated that the true long-term cost would be more than $350 billion if the tax breaks keep being renewed.

Proponents argue that their favored provisions contribute to job creation. A case in point is the NASCAR break, which affects how quickly motor sports entertainment complexes can write off the cost of property development. Track owners spread the cost of such investments over seven years; most taxpayers are allowed 15 years for business property depreciation.

The Internal Revenue Service challenged the seven-year schedule used by International Speedway Corp. — owners of the Daytona Speedway and 11 other NASCAR tracks — but in 2004 Congress passed a law reversing the IRS ruling.

Lenny Santiago, a spokesman for International Speedway, said the tax treatment helped the Daytona Speedway generate $1.9 billion a year in economic benefits to central Florida.

“We have to continue to make the facilities appealing to fans,” he said. “We can’t let things fall into disrepair.”

Rep. Lloyd Doggett (D-Texas) said at a recent hearing that it was an “unjustified and unnecessary” break, worth $38 million to the company, that would never pass muster as a straight-up appropriation of federal money.

“If you were to come … and ask us to write a check through the appropriations process for $38 million for the year only for NASCAR,” Doggett said, “you’d be laughed out of the room.”

janet.hook@latimes.com