In a dogfight being fought largely under the radar, Wall Street is outmaneuvering Big Oil in the Senate.
Democrats, spooked about deficit spending and in need of funds to pay for extensions of expiring corporate tax breaks, have been looking under every couch cushion for revenue. They've identified two lucrative ways to pay for the tax extender legislation: Closing a loophole that allows investment fund managers to dodge income taxes and an increase in energy taxes to fund a Oil Spill Liability Trust Fund.
The House increased the oil spill tax from 8 cents to 34 cents per barrel, raising $10.8 billion over ten years, and gave the investment fund guys -- managers of hedge funds, real estate partnerships, venture capital and private equity -- a slight tax increase by requiring that 75 percent of their income be counted as income rather than as carried interest taxed as a long-term capital gain. That investment fund tax hike would raise $18 billion.
That will offset some of the extensions of corporate tax credits: a $6.665 billion dollar research and development credit, refundable AMT credits for corporations calculated at $2.3 billion, $4.85 billion for real estate developers, $3.9 billion to extend for one year "the active financing exception from Subpart F of the tax code," $868 million for biofuel credits and millions for NASCAR, Puerto Rican rum producers and a grab-bag of other tax credits, according to a summary prepared by the House Ways and Means Committee. The unemployment insurance extension, costing $39.8 billion, is not offset with any tax hikes because it is deemed emergency spending. The House saved roughly $8 billion by dropping COBRA subsidies.
Extending the tax credits -- the K Street kickback -- is a popular activity in Congress; with all the corporate lobbying behind the extenders, the bill generally moves through easily and can be a vehicle to attach other items. "They become the spoonful of sugar that helps the medicine go down," Sen. Dick Durbin (D-Ill.) said on the Senate floor Wednesday.
But with fears of deficit spending spreading through the Capitol, the tax extenders journey through Congress has been bumpier than usual and required Wall Street and Big Oil to chip in.
The hedge fund managers and their allies continued the battle in the Senate, which has so far agreed to knock the ratio down to 65-35. That cost about $4 billion dollars -- half of the COBRA price tag -- so Democrats had to go find funds to make up the difference. They spied the oil companies and boosted the tax to 41 cents per barrel.
Big Oil is fuming, looking for refuge on "Main Street."
"This proposal amounts to an effort to pay Wall Street by robbing Main Street," said National Petrochemical & Refiners Association President Charles T. Drevna in a letter to the Senate. "This tax increase will raise the cost of gasoline, diesel fuel and other products for American families, all in the name of giving more tax breaks to bankers and hedge fund managers."
Drevna ripped the Democratic maneuvering as budgetary slight of hand. Indeed, the revenue raised offsets spending on corporate tax breaks as its primary purpose. That it funds the spill liability trust fund is of secondary importance.
"We strongly denounce this budgetary gimmick that would give Wall Street a break while increasing energy costs for consumers and businesses across America," said Drevna. Knowing he's unlikely to find much sympathy for Big Oil in Congress, he pleaded with members to think of those who use Big Oil's product.
"Members of the Senate should put the needs of American families, farmers, and truckers ahead of the interests of Wall Street and work to defeat this misguided proposal," he said.