The 11th-hour deal to avert the so-called fiscal cliff preserved billions of dollars in corporate tax giveaways even as it slashed take-home pay for millions of American workers.
Tucked inside the last-minute fiscal cliff package were more than a dozen tax loopholes, many of which will benefit Wall Street financial firms and some of the nation's biggest corporations. These breaks will cost billions of dollars in the coming year, underscoring the lobbying power of corporate interests.
The deal was less kind to the middle class. Congress permitted a cut in the payroll tax to expire, meaning that the tax burden for the average worker will increase about $1,000 in 2013.
"This shows that the lobbyists are able to get what they want even when everyone else is starving," said Phineas Baxandall, senior analyst for tax and budget policy at the U.S. Public Interest Research Group. "It also shows they are best able to get what they want when no one else is paying attention."
The corporate loopholes were part of a package of so-called tax extenders tacked onto the main bill. The extenders package, first approved by the Senate in early August, mixes popular benefits, like a deduction for teachers who buy classroom supplies, with corporate-friendly carve-outs, such as the "active financing" exception that permits businesses earning interest on overseas lending to defer U.S. taxes on that income indefinitely. There is even a tax break for construction of new racetracks.
The tax extenders were passed for only one year, and they still need to clear another potential hurdle: upcoming negotiations over mandated spending cuts and the debt ceiling. President Barack Obama and congressional leaders have indicated they'd like to see a "grand bargain" on taxes, which would feature lower overall rates but close a slew of loopholes.
The financial services industry, whose leaders had earlier joined a group of other corporate executives pushing for a "fair" solution to the fiscal crisis, is one of the primary beneficiaries of special-interest tax breaks. The active-financing exception, for example, permits banks like Morgan Stanley to avoid the 35 percent U.S. corporate tax rate on interest income from money lent overseas. A handful of other U.S.-based multinational companies with financing arms, such as Ford Motor Co. and General Electric, also use that exemption to lower their tax bills. The two-year cost to taxpayers is an estimated $11.2 billion, according to the congressional Joint Committee on Taxation.
U.S. financial institutions argue that the active-financing exemption is necessary for them to compete in overseas markets with foreign banks that carry a lower tax burden. The loophole was repealed in the Tax Reform Act of 1986, but was reinstated in 1997 as a temporary measure after fierce lobbying by multinational corporations.
The exemption belongs to a small group of boutique corporate tax loopholes that are worth a lot of money to a relative handful of corporations. It even has its own lobbying coalition, the Active Finance Working Group, which serves as a prime example of how important the 20 or so companies that benefit from the exemption consider it. Founded in 2005, the group was quiet during the last few years of the Bush administration, but roared to life again in 2009.
That year, the coalition retained the services of former top Democratic congressional aide-turned-lobbyist Steve Elmendorf, whose firm, Elmendorf Ryan, has earned more than $1.2 million in lobbying fees from the working group in the past four years. Lobbying disclosure reports reveal that the coalition was housed in the same office as Elmendorf Ryan and that the coalition's lobbyists had just one task: protect the active-financing exemption.
In Elmendorf's firm, the Active Finance Working Group has a top-flight team: All eight of the Elmendorf Ryan lobbyists working on the issue in late 2012 were former congressional staffers, most with ties to powerful lawmakers, including to Senate Majority Leader Harry Reid (D-Nev.) and Senate Finance Committee Chairman Max Baucus (D-Mont.).
According to Citizens for Tax Justice, the financial services industry paid an average effective tax rate of 15.5 percent from 2008 to 2010, far lower than that of most other industries.
As part of the fiscal cliff deal, Congress also extended another little-known tax break that benefits large multinationals selling products through overseas affiliates. This "pass-through" exemption permits a U.S.-based company to set up a new corporation in a tax haven like the Cayman Islands and sell it a patent owned by the U.S. parent company. Royalties on overseas licensing of that patent would then route to the tax-sheltered firm, instead of the U.S. parent company. The Joint Committee on Taxation says the two-year cost of extending this shelter is $1.5 billion.
One of the more unusual tax benefits in the fiscal cliff legislation is a longstanding carve-out for racetracks used by NASCAR.
Since 2004, Congress has passed a series of stopgap measures that allow owners of motorsports complexes to accelerate their depreciation expenses. This means that owners can deduct more in expenses, reducing the taxes they must pay.
Track owners and NASCAR together have spent hundreds of thousands of dollars lobbying for the tax benefit over the past five years, according to lobbying disclosure forms. The International Speedway Corp., which owns and manages NASCAR race tracks, has spent more than $1.1 million lobbying Congress since 2008. Over the same period, NASCAR spent more than $300,000 on lobbying efforts, which included a push to "make permanent the depreciation classification."
Supporters in Congress and industry groups have argued that the tax break is necessary to "maintain the current standard expected by our competitors and fans." According to estimates by the Joint Committee on Taxation, the so-called NASCAR loophole will cost taxpayers $46 million this year and an additional $95 million through 2017.
A spokesman for the International Speedway Corp., Charles Talbert, said the industry is simply seeking to preserve a tax designation it has relied on for years. He said in an email that racetracks had always used the accelerated depreciation schedule, but Congress had specifically written it into law after the Internal Revenue Service argued that it was improper in the early 2000s.
Though Congress was willing to sign off on all these business-friendly goodies, legislative leaders couldn't muster enthusiasm for extending the payroll tax holiday, which had cost the federal government $120 billion each year in lost revenue.
As a result, a worker who earns $50,000 a year will now pay at least $80 more per month in taxes. The payroll tax increase will affect as many as 160 million people.
CORRECTION: A previous version of this story overstated the cost of the business tax extenders. The cost of the rising payroll tax to an average American has also been clarified.
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1.Private Use Of Corporate Aircraft
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<strong>2011 value:</strong> $2,611,873 <strong>CEO:</strong> Sheldon Adelson <strong>Company:</strong> Las Vegas Sands (<a href="http://247wallst.dailyfinance.com/quote/nyse/las-vegas-sands-corp/lvs">NYSE: LVS)</a> Adelson became famous to the general public recently when he invested tens of millions of dollars into the campaigns of several presidential candidates. He helped keep Newt Gingrich financially alive in the Republican primaries, and funneled $95 million to the Republican party both directly and through PACs. Adelson is among the most wealthy people in America with a net worth of $20.5 billion, which puts him at the No. 12 position on the Forbes 400. The source of the 79-year-old’s wealth goes well beyond his compensation. According to the proxy, Adelson and his wife, Miriam Adelson, own roughly 52.4% of outstanding common shares of the company, either directly, or through trusts and other entities. Adelson has run the company since he started it in 1988. The Las Vegas Sands proxy also notes that the company provided security for Adelson and his family, with the full fiscal year 2011 bill coming to $2,611,873. Adelson also has extensive access to company-paid private air travel. Another famous billionaire executive whose company pays an extraordinary amount for security is Jeff Bezos. The founder of Amazon has a net worth of $23.2 billion. Bezos’ security costs were an extraordinary $1.6 million last year. Read more at <a href="http://247wallst.com/2012/12/13/eight-outrageous-ceo-perks/#ixzz2EwbHfFYZ">24/7 Wall St.</a>
3. Signing Bonus
<strong>2011 value:</strong> $53 million <strong>CEO:</strong> Ron Johnson <strong>Company:</strong> J.C. Penney (<a href="http://247wallst.dailyfinance.com/quote/nyse/jc-penney-company-inc/jcp">NYSE: JCP</a>) One of the most visible failed CEO appointments of recent years is that of former Apple retail chief, Ron Johnson, to run troubled retailer J.C. Penney. According to a J.C. Penney proxy, Johnson was granted $53 million in company stock as part of his initial compensation package. But the hopes Johnson would turn things around at the retailer quickly faded. Since he assumed the position on November 1, 2011, J.C. Penney shares have fallen roughly 40%. The company’s fortunes have deteriorated substantially since Johnson joined. In the most recent quarter Penney reported that same-store sales for Q3 2011 fell by 26.1%, while total sales fell by 26.6%. Sales through JCP.com were just $214 that quarter, down 37.3% from the same period last year. Read more at <a href="http://247wallst.com/2012/12/13/eight-outrageous-ceo-perks/#ixzz2EweEFXjz">24/7 Wall St.</a>
4. Use of Car and Driver
<strong>2011 value:</strong> $572,596 <strong>CEO:</strong> Ralph Lauren <strong>Company:</strong> Ralph Lauren (<a href="http://247wallst.dailyfinance.com/quote/nyse/polo-ralph-lauren-corp/rl">NYSE: RL)</a> Ralph Lauren, who founded his empire in 1967, remains CEO of his company to this day. Holding a large amount of stock, the 73-year-old fashion great has become immensely wealthy with a net worth of $6.5 billion. He has control over the company through the ownership of 69.1% of the voting shares. Lauren gets a large sum for his car and driver, along with other lavish benefits. The company’s proxy says: “We believe that these benefits generally allow our executives to work more efficiently, promote our brand and are legitimate business expenses. The costs of these benefits constitute only a small percentage of each NEO’s total compensation.” Read more at <a href="http://247wallst.com/2012/12/13/eight-outrageous-ceo-perks/#ixzz2EwjEHeqK">24/7 Wall St.</a>
5. Personal Accounting
<strong>2011 value:</strong> $250,000 <strong>CEO:</strong> Aubrey McClendon <strong>Company:</strong> Chesapeake Energy (<a href="http://247wallst.dailyfinance.com/quote/nyse/chesapeake-energy/chk">NYSE: CHK</a>) Chesapeake Energy company CEO Aubrey McClendon has been in the press as much as any other CEO this year. He took out $1.1 billion in personal loans on wells that Chesapeake gave him. And then, Reuters reported, “McClendon also ran a $200 million hedge fund that was registered at Chesapeake’s Oklahoma City office from 2004 to 2008 and traded in the same commodities Chesapeake produces.” The trouble with the McClendon scandal and the departure of several board members at Chesapeake has pulled shares down more than 20% this year. McClendon has been on the board of Chesapeake for 23 years as of the last proxy, and is listed as a co-founder. Over the last three years, according to the same proxy, he had total compensation of over $57 million as the head of Chesapeake. According to company filings, the CEO’s 2011 benefits included “$250,000 for the costs related to personal accounting support provided to Mr. McClendon by our employees.” Read more at <a href="http://247wallst.com/2012/12/13/eight-outrageous-ceo-perks/#ixzz2Ewk46wnA">24/7 Wall St.</a>
6. Life Insurance
<strong>2011 value:</strong> $131,280 <strong>CEO:</strong> Leslie Moonves <strong>Company:</strong> CBS (<a href="http://247wallst.dailyfinance.com/quote/nyse/cbs-corp/cbs">NYSE: CBS</a>) Les Moonves is the chief executive of CBS, which is controlled by its largest shareholder and chairman Sumner Redstone. Redstone is among the richest people in America, with a net worth of $4.1 billion, according to Forbes. Redstone’s support of the CEO of the television network company has made Moonves wealthy as well. The former president of Warner Bros. Television has made over $170 million as CBS’s CEO in the last three years. CBS SEC filings show that part of Moonves pay package includes $131,280 in life insurance premiums paid by the company in 2011. Read more at <a href="http://247wallst.com/2012/12/13/eight-outrageous-ceo-perks/#ixzz2Ewkv7lYN">24/7 Wall St.</a>
7. Vacation/Vacation Home
<strong>2011 value:</strong> $453,382 <strong>Chairman:</strong> William P. Foley II <strong>Company:</strong> Fidelity National Finance (<a href="http://247wallst.dailyfinance.com/quote/nyse/fidelity-national-financial/fnf">NYSE: FNF</a>) William P. Foley II, the chief executive of Fidelity received one of the oddest benefits of any large public company CEO. Fidelity paid him for the use of properties he owns. His list of perks is much longer than that. The firm’s proxy states that in 2011, the company paid $443,382 “to Rock Creek Cattle Company, Ltd. Which is owned by Foley. Those payments, according to the company were for “fees related to company meetings at the facility and membership dues for certain company officers, including $18,000 in dues for our named executive officers.” Other payouts by Fidelity to Foley-owned or controlled companies include “$13,249 to Hotel Les Mars, LLC, $25,974 to Foley Family Wines, $1,172 to Kuleto Estate, $57,946 to EOS Acquisition II, LLC, $1,985 to Glacier Jet Center, $1,171 to Mackenzie River Pizza Whitefish, $12,483 to Foley Estates Vineyards and Winery and $1,335 to Glacier Restaurant Group, LLC.” Read more at <a href="http://247wallst.com/2012/12/13/eight-outrageous-ceo-perks/#ixzz2EwmBA7kr">24/7 Wall St.</a>
8. Personnel Costs
<strong>2011 value:</strong> $83,327 <strong>Chairman:</strong> Martha Stewart <strong>Company</strong>: Martha Stewart Living Omnimedia (<a href="http://247wallst.dailyfinance.com/quote/nyse/martha-stewart-living/mso">NYSE: MSO</a>) Martha Stewart Living Omnimedia founder and chairman, Martha Stewart, is treated extremely well as head of a company that consistently loses money and had revenue of only $44 million in the last quarter. The tiny company has given her compensation of over $21 million during the last three years. Stewart has a great deal of control over her financial fate. She owns 100% Class B shares in the company, which gives her a majority vote on all matters regarding the corporation. Among her many, many benefits, according to the proxy is “$83,327 for the portion of personnel costs for individuals performing work for Ms. Stewart for which we were not reimbursed.” Read more at <a href="http://247wallst.com/2012/12/13/eight-outrageous-ceo-perks/#ixzz2Ewnan8CW">24/7 Wall St.</a>