|  Home  |  Site Search  |  Tax News & Views  |  

Citizens for Tax Justice Rails Against Tax Breaks

Thursday, May 2, 1996

OnLine

A liberal public-interest group railed against special income tax provisions including accelerated depreciation and capital gains tax breaks.

"Tax breaks tend to reward those with the most lobbying muscle in Washington, especially organized business interests," said Bob McIntyre, director of Citizens for Tax Justice, Washington.

McIntyre outlined his objections to certain tax expenditures at a press conference to trumpet the release of his group's report, "The Hidden Entitlements." The report was updated from last year to project the cost to taxpayers of tax expenditures for fiscal years 1996 through 2002.

These tax provisions or "entitlements," McIntyre said, likely will cost the federal government $3.7 trillion during the next seven years and the chief beneficiaries will be the affluent and corporations.

"A Congress that is eager to challenge low-income welfare entitlements ought to be at least as tough -- if not tougher -- on welfare entitlements for the well-heeled and politically powerful, if it truly wants to bring the budget deficit under control," McIntyre said.

House Minority Leader Richard Gephardt, D-Mo., issued a statement May 2 saying the group's report deserves examination. He also took the opportunity to promote his tax reform plan which would eliminate most deductions. "While the Republicans focus their efforts on cutting Medicare, student loans, and environmental protection, they're protecting spending for their special interest friends," Gephardt said.

According to McIntyre, accelerated depreciation is the largest corporate tax loophole. He estimated that this tax break will cost the government $259 billion through 2002. For example, Eastman Kodak paid an effective federal tax rate of 17.3 percent -- less than half the 35 percent statutory corporate tax rate -- mainly because of $124 million in tax subsidies from accelerated depreciation, he said.

Accelerated depreciation also allowed American Home Products to pay a 15.6 percent tax on its $4.2 billion in US profits from 1992-94, and Allied Signal to pay 10.7 percent in taxes on its $3.4 billion in US profits during the past four years, according to the report.

These tax breaks are worth an average of $13,000 a year to people making more than $200,000, but less than $70 a year to families earning less than $50,000, McIntyre said.

McIntyre called the tax expenditure "phantom depreciation" since, he said, it allows businesses to write off the cost of their machinery and equipment faster than it actually wears out.

Preferential capital gains tax rates are expected to cost $258 billion during the next seven years, McIntyre said. Almost two-thirds of total capital gains reported on individual tax returns go to people whose incomes exceed $200,000, he added.

McIntyre also disputed the Republican assertion that capital gains tax cuts lead to improved economic performance. Capital gains tax increases have actually led to increased growth, he said. For example, following enactment of the 1986 Tax Reform Act, the growth rate jumped from 2.2 percent to 3.8 percent, McIntyre said.

The report also criticized tax breaks for mergers and acquisitions, business meals and entertainment write-offs, multinational tax breaks, and tax benefits for insurance companies.