(12-15) 04:00 PST Washington - --
The tax compromise expected to pass the Senate today and add $858 billion to the national debt is packed with much more than another year of unemployment benefits and a two-year extension of all the Bush-era tax cuts.
It also contains a special-interest bonanza of spending programs disguised as tax breaks, or "tax earmarks," that range from energy and education tax credits to tax-exempt bonds for areas damaged by Hurricane Katrina in 2005.
California's Democratic Sens. Dianne Feinstein and Barbara Boxer joined an overwhelming 83-15 vote Monday to move forward on the tax bill, the biggest bipartisan victory of the Obama administration so far. A Senate vote on final passage is expected today.
Ethanol subsidies are among the biggest earmarks. Feinstein waged a last-ditch effort Tuesday to reduce them, even as she sought to add tax breaks for wind and solar developers. She and Boxer and a dozen other Senate Democrats and 81 House members demanded the alternative-energy tax breaks in exchange for their votes for the tax bill.
An amendment by Feinstein to cut ethanol subsidies and extend a tax credit for alternative-energy manufacturers, which was part of the 2009 stimulus, failed. The $2.3 billion program has made nine awards to California companies, including Stion and Nanosolar in San Jose.
One program survives
But one big alternative-energy program that survived under pressure from Democrats would extend a subsidy to cover nearly a third of the cost of new wind and solar installations. It was the top goal for alternative-energy industry lobbyists.
Benefiting from the subsidies will be the Ivanpah solar electricity-generating plant in the Mojave Desert, projected to be the largest solar project in the world when finished.
Feinstein's amendment also would have reduced subsidies for ethanol, a fuel made from corn. It would have cut the tariff on imported ethanol and the 45-cent-per-gallon subsidy for ethanol blended into gasoline.
The amendment was killed by Farm Belt opposition, led by Iowa's two senators - Democrat Tom Harkin and Republican Charles Grassley. About a third of the U.S. corn crop goes to ethanol production.
Feinstein said ethanol has never lived up to its promise to displace foreign oil, and that the tariff increases U.S. dependence on Mideast imports by discouraging imports of cheaper ethanol from more efficient producers in Brazil, Australia and India.
Ethanol has been blamed for contributing to an algae bloom the size of New Jersey that appears each spring in the Gulf of Mexico, fed by fertilizer runoff from the Mississippi River watershed. The ethanol subsidies cost taxpayers more than $5 billion last year.
The Feinstein fight illustrates two of the energy tax breaks, for alternative fuels and a fossil fuel known as liquid coal, that are sprinkled throughout the tax bill. Environmentalists are furious over an extension of a big tax credit for liquid coal.
"Congress should not be doing anything to help a liquid coal industry get off the ground," said Jim Presswood, energy policy director for the Natural Resources Defense Council, arguing that liquid coals release twice as much carbon as conventional fossil fuels such as oil.
Energy tax breaks
The legislation contains $11 billion in energy tax breaks, including tax credits for biodiesel, energy-efficient homes, marginal oil wells and alternative vehicle refueling property. Alternative-energy industry lobbyists calculated correctly that Republicans would not bring down the tax bill over a few energy credits.
Owners of NASCAR speedways and other "motor sports entertainment complexes" will be able to write off their investments faster than other business taxpayers. Companies that donate books and computers to schools will get an enhanced deduction. Hollywood will get a two-year extension of instant expensing of the costs of most film and television production in the United States, to keep film production from fleeing overseas.
Puerto Rico and the Virgin Islands - and liquor companies Diageo and Bacardi - won an extension of their rebates on rum tariffs. American Samoa - or the corporations that do business there - get an additional two years of tax breaks.
"These tax earmarks have been around all year long and nobody wanted to take them up because they were not willing to pay for them," said Steve Ellis, vice president of Taxpayers for Common Sense, an anti-deficit group. "Now they're going to hitch their wagon to the last train leaving the station, even though it's going to cost taxpayers billions of dollars."
People get breaks, too
Middle-class taxpayers will also get big tax breaks, including another temporary revision of the alternative minimum tax that now reaches six-figure income households. Without that extension, 28 million households would be paying the tax instead of the current 4 million.
Parents will get an expanded dependent care credit and an extension of the increase in the adoption tax credit. Seven provisions extend, temporarily, education credits that include an extra deduction of interest on student loans and excluding scholarships from taxation.
Americans for Tax Reform, an anti-tax group headed by activist Grover Norquist, acknowledged that many of the personal and business tax breaks are "horrible tax policy" but argued that "only spending programs can be pork, earmarks or bailouts. Letting people (or employers) merely keep their own money is not "spending money on them."
The White House-sponsored bipartisan deficit reduction commission, which issued its report this month, counted more than $1 trillion in special breaks in the tax code and said that they should be eliminated or sharply reduced to cut rates for everyone while generating more revenue for the government.
This article appeared on page A - 1 of the San Francisco Chronicle
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