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The K Street Kickback: The Giveaway That Reid Stripped From The Jobs Bill

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The GOP is outraged that Senate Majority Leader Harry Reid (D-Nev.) spiked the bipartisan jobs bill unveiled on Thursday, dropping some of its major provisions. But what exactly was cut from the bill that made them so angry -- was it the loss of the COBRA subsidies or the unemployment extension?

No, it was the K Street Kickback, which extends huge tax credits to large corporations. Unlike the Louisiana Purchase or the Cornhusker Kickback, which won the support of Sens. Mary Landrieu (D-La.) and Ben Nelson (D-Neb.) for the health care reform bill, the K Street payoff is counted in the tens of billions of dollars, rather than a few hundred million. While Democratic senators come cheap, getting Republicans to buy into a jobs bill seems to cost taxpayers serious money.

One of the top priorities of Big Business lobbyists is the "tax extender" issue, the extension of expiring tax credits worth tens of billions of dollars to major corporations, which is favored by Republicans.

Sen. Chuck Grassley, the top-ranking Republican on the Finance Committee, was quick to cry foul when Reid slammed the bill. Along with Chairman Max Baucus (D-Mont.), his name was on the bipartisan draft bill that was released earlier that day.

"Senator Reid's announcement sends a message that he wants to go partisan and blame Republicans when Senator Grassley and others were trying to find common ground on solutions to help get the economy back on track and people back to work," said his spokeswoman Jill Kozeny.

"Senator Reid did this just as Republican senators were saying they liked things in the Baucus-Grassley draft, which would have prevented billions of dollars in tax increases and offset any spending. The Majority Leader pulled the rug out from work to build broad-based support for tax relief and other efforts to help the private sector recover from the economic crisis."

When Kozeny refers to preventing "billions of dollars in tax increases," she's referring to the extension of the tax credits, which officially expired at the end of 2009. The "increase," therefore, is already in effect. Any rollback will be a tax cut.

The fight over tax extenders essentially never ends in Washington, partly because it's the type of issue that is mutually beneficial to K Street and Congress, and partly because it's a budget-score shell game. Extending the tax-breaks each year keeps them off the long-term books. And because most of the credits expire each year, lobbyists can argue to their business clients that their services need to be kept on retainer at all times. And members of Congress win because the lobbyists continuously shower them with corporate money.

Tax extenders caught on about 15 years ago as government spending fell out of favor and tax cuts gained popularity in the wake of the 1994 Republican Revolution. They were popularized during the George W. Bush years, and they're all typically jam-packed into a single bill.

Tax extenders are basically a set of about 50 individual tax breaks that expire more or less every year, yet are continually renewed by Congress, says Howard Gleckman, senior research associate at the Washington, D.C.-based Tax Policy Center. They're mostly for businesses and they tend to be very highly targeted. About $30 billion a year in tax revenue is transferred into the hands of a few special interests, Gleckman says.

He added that there's not much evidence they add anything to the economy -- even for the decades-old research and development tax credit. Gleckman says that companies that need to do research and development will do it anyway for their firm's survival. So why pass along taxpayer money in the process?

Analysts say there are a few identifiable explanations. First, by making them one-year expenditures, they don't have to be scored for the budget. Budgeting expenses and revenues requires 10-year projections, so what shows up now as a $30 billion hit in 2010, for example, ends up as zeroes for the next nine years. If it were built into the budget, it would instead show up as an overall $300 billion hit at $30 billion a year.

When Reid dropped the tax extenders from the package, he argued that he didn't want the bill to get bogged down. The annual reauthorization vote can also become a "useful political vehicle," Gleckman said. "These are considered must-pass bills." For legislators who want to add their own pet project, and have passage nearly assured, "it's a good train to get on with your own special tax breaks."

"Congress has dozens of tax provisions that they have set out in their naked self-interests to expire automatically," said Paul L. Caron, a tax law expert and professor at the University of Cincinnati College of Law.

It's bad public policy, Caron argues, because it creates uncertainty for firms and essentially holds them hostage to members of Congress, who can shake them or their lobbyists down for campaign contributions when the annual bill comes up for a vote. "The public choice view of that, and the tax policy perspective on that, is it's just naked extortion. Congress sets up these expiration dates so these things will expire or be in jeopardy of expiring to then extort campaign contributions from the affected folks," said Caron, who also runs the TaxProf Blog. "It's the benefit that keeps on giving."

"As a policy matter, this is as bad as you could have it," Caron said. "It's just corporate welfare, and it's keeping uncertainty out there" for the affected firms.

Congress does the same with corporate tax extenders as it does with policies that impact doctors and the poor. The American Medical Association must lobby each year to stave off a huge cut in Medicare reimbursements -- the so-called doc-fix -- which Congress refuses to make permanent. And Congress declines to index the minimum wage to inflation so unions must lobby for an increase in it and Democrats can take credit for raising it.

When Democrats actually attempted to make the doc-fix permanent, the GOP deserted and the measure died on the floor. Democrats also attempted to include it in comprehensive health care reform, but eventually pulled it out as too expensive. It's easier to do every year, they concluded, than to take the public-relations hit that a long-term fix would mean. Besides, doctors have a lot of money to spend on lobbying. Might as well keep them at it.

Obama's budget, recently submitted to Congress, calls for the research and development tax credit to become permanent. Senate Republicans sent him a letter Friday calling for him to immediately extend it and "improve" it -- an improvement that would likely mean leaving it to expire again at the end of this year.

"We are very concerned that the research tax credit has expired, leaving the U.S. without a tax incentive to counter the ever-growing array of attractive research inducements offered by many of our trading partners. We realize that your budget calls for a permanent extension of the credit, for which we commend you. However, we believe that in order to gain the full effect of the incentive and to keep the U.S. as the premiere location for research in the world, we must improve the credit as well as extend it," wrote Sens. Orrin Hatch (R-Utah), Robert Bennett (R-Utah), Jim Bunning (R-Ky.), John Cornyn (R-Texas), Mike Crapo (R-Idaho), Mike Enzi (R-Wy.), Kay Bailey Hutchison (R-Texas), Johnny Isaakson (R-Ga.), James Risch (R-Idaho), Pat Roberts (R-Kan.).

Some of the tax extenders are of the sort that progressives back, such as those that encourage the development of solar energy. But most are simple giveaways to financial institutions and large corporations that do little if anything to entice hiring.

Reid's new bill even made Hatch angry, despite the fact that one of its four provisions was drafted by him and Sen. Charles Schumer (D-N.Y.).

"We are certainly unhappy with the process," said Antonia Ferrier, a spokeswoman for Hatch, calling it "highly partisan."

"When Senator Reid goes and does this to Republicans in such a brazen way, it poisons the well," she said. "He turned it into the House in a matter of hours."

The bipartisan package included other K Street gifts, as well, which have nothing to do with job creation but everything to do with bargaining to get Republican votes. One provision would provide "relief" to "single employer and multiemployer pension plans that suffered significant losses in asset value due to the steep market slide in 2008," according to a memo from the Finance Committee.

It also includes $1.5 billion in agriculture disaster assistance, short-term extensions of two provisions of the Patriot Act, the national flood insurance program, and some Small Business Administration loan provisions.

To Chuck Marr, director of federal tax policy at the Washington-based Center on Budget and Policy Priorities, tax extenders don't belong in the jobs bill.

"They have nothing to do with the jobs bill, nothing to do with unemployment," said Marr, a former adviser to former Senate Majority Leader Tom Daschle. "These shouldn't distract from the task at hand, and the task at hand is that one in ten people are unemployed."

Reid, in announcing his trimmed down package, alluded to the real author of the tax extenders. "We are not going to confuse this with tax extenders," he said. "One of my favorite stories was -- I think it was in the New York Times -- one of you wrote about 'Democrats introduce a jobs bill, but most of it was written by lobbyists downtown.'"

Reid said the new bill cannot be mistaken for the work of lobbyists.

Or, as he put it in Reid-ese: "No one's written what we're going to bring up downtown."