GOP Takes Aim At Deductions, Loopholes In Tax Reform Push

WASHINGTON – The chairman of the House Ways and Means Committee, which writes the nation's tax legislation, says Republicans are going after "unfair carve-outs and loopholes" to cut corporate taxes to the lowest rates possible.

But Congressman Kevin Brady of Texas acknowledged it won't happen without a fight when the House takes up tax reform next month because influential special interests have benefitted from "sweetheart deals" for years.

More than 1.000 businesses and industry groups have hired more than 4,000 tax lobbyists in preparation for a frenzy of lobbying that one investment advisor predicted would compare to the death match of the "Hunger Games."

Steve Ellis, vice president of Taxpayers for Common Sense, a government watchdog group, described the tax lobbyists this way: "They are like the cockroaches of Washington policy. They don't go away that easily."

Neither Brady nor congressional leaders have said specifically what tax breaks they'll pursue to compensate for lowering the 35 percent rate businesses now pay the government.

But putting special interests on notice is worrying special interests from the biodiesel industry to farm groups to electric car companies to movie makers to NASCAR racetracks to race horse owners.

"Every one of these has a diehard group of supporters who are going to oppose it," said Mark Mazur, director of the Tax Policy Center.

For lobbyists who won the tax breaks, "this is their Mona Lisa. Their Magnum Opus. Their life's work," said Robert Goulder, senior policy counsel for Tax Analysts, a nonprofit research organization. "They're not going to let them (tax breaks) go easily."

GOP congressional leaders claim eliminating $1.4 trillion a year in loopholes would raise enough money to substantially lower the business tax rate -- a sensible move other countries are implementing, said Goulder.

In a plan broadly outlining their approach last year, House Republicans argued tax deductions distort the free market by helping "politically-favored interests" and erode trust from those businesses that don't get special consideration.

A fairer system, the document said, would eliminate tax breaks and use the savings to lower the tax rate on all businesses from 35 percent to as low as 20 percent. President Donald Trump, as a candidate, proposed a 15 percent rate for small businesses.

In reality, many industries already pay far less than 20 percent of their revenue on taxes because of various tax write-offs, said Mazur, adding that cutting the tax rate won't keep them from wanting to hang on to the write-offs.

Businesses groups argue special treatment in deductions and write-offs have produced more American jobs.

In Iowa, the nation's largest producer of biodiesel fuel, 3,800 jobs depend on an industry aided by a $397 million annual tax credit for producing alternative fuels. The burgeoning industry provides 64,000 jobs nationally, including in states like Oklahoma and Texas, according to the National Biodiesel Board, a trade group.

"These are good-paying jobs. Manufacturing jobs," said Grant Kimberley, the head of the group's Iowa chapter.

In addition, the tax credit helps the soybean farmers and ranchers produce oil and animal fat for alternative fuels, he said, effectively allowing them to compete with oil and gas companies and foreign biodiesel producers who also get subsidies.

A 2014 tax change that allows race horse owners a three-year depreciation for all racehorse purchases has cost the government $74 million a year, said Taxpayers for Common Sense.

But Alex Waldrop, president of the Lexington, Kentucky-based National Thoroughbred Racing Association, said the deduction should be continued.

"This is not a hobby or a silly pursuit by a bunch of rich people," he said. "It supports millions of jobs."

Thirty-two agricultural groups wrote Congressman Brady in June, claiming elimination of a manufacturing tax credit would mean farm co-ops could not deduct the cost of their payrolls "at a time when (farm) prices are depressed."

Joel Levin, executive director of Plug In America, an electric car industry group, worried losing an annual $220 million credit that lowers the price of fuel-efficient cars could hurt auto plants in Michigan, Ohio and other states.

More broadly, China is increasing investment in plug-in cars, he said. "We want the future of cars to be in the U.S. like it has been for a century," Levin said. "Or else we'll be buying cars from somewhere else."

But there are exceptions to businesses objecting. The American Banking Association wrote to Sen. Orrin Hatch of Utah, chairman of the Senate's Finance Committee, last month to urge elimination of special tax breaks for credit unions and the farm credit system.

The bankers complained it is unfair to give some money-lending institutions tax breaks but not their competitors.

Retailers are also pushing to revoke tax breaks on the basis their taxes could be reduced if other industries' subsidies were eliminated.

"Billions of dollars are at stake," said Craig Shearman, spokesman for the National Retail Federation. "Companies on the receiving end won't give up that money easily."

Contact reporter Kery Murakami at [email protected].