‘Fiscal cliff’ deal has billions in business tax breaks

WASHINGTON — In the last-minute dealmaking to stop the nation from tumbling over the so-called fiscal cliff, Congress and the White House decided not to spare most people from a hike in Social Security payroll taxes. But they did find room for billions in special tax breaks for rum makers, racetrack owners, railroads — and Hollywood studios.

Riding along on the compromise bill were dozens of provisions that renewed existing tax breaks. All told, the business tax breaks will cost more than $63 billion next year, according to an analysis by Congress’ Joint Committee on Taxation.

The total cost doesn’t add up to much compared with the rest of the federal government’s $3.5-trillion budget. Supporters of such deals said that by helping businesses, the measures protect jobs.

Watchdog groups, however, said the survival of the subsidies exposed the broken nature of the tax system — and Congress’ inability to tackle it.

“These are basically spending subsidies written into the tax code, and there was just no discussion about them,” said Robert Bixby, executive director of the Concord Coalition, which advocates for fiscal responsibility.

So how did the special deals make it into the fiscal cliff compromise?

“The White House insisted,” said Don Stewart, a spokesman for Senate Minority Leader Mitch McConnell. The White House didn’t respond to a request for comment.

The measures did get examined in detail by the Senate Finance Committee, which approved them by a 19-5 vote in August. The package includes extensions on popular breaks that benefit individuals, including the deduction for state and local taxes.

Sen. Tom Coburn (R-Okla.), one of the few who voted against the measure in committee, said he fought vigorously against what he called “tax goodies for special groups.”

“I lost every vote,” he said.

“I’m sure there were people on both sides that wanted it in” the fiscal cliff deal, Coburn said. “You have people calling for fairness, but they want to protect the wealthy or their supporters. And that’s on both sides of the aisle.”

The rum excise deal has come under particularly harsh criticism in Congress. Under the 100-year-old arrangement, the government collects a tax on rum and returns nearly all of it to Puerto Rico and the Virgin Islands to support public programs — distributing $547 million in fiscal year 2009.

In 2008, the Virgin Islands agreed to use that money to finance a new Captain Morgan distillery for the giant British spirits company Diageo. The company moved its operations from Puerto Rico. Now, other rum makers have gotten in on the deal, and critics say the tax, rather than helping average people, has become a subsidy to the industry.

“The purpose is to help the citizens, not simply give it back to the producers,” said Pedro R. Pierluisi, Puerto Rico’s delegate to Congress, who has been trying to push legislation limiting the corporate subsidies.

Supporters of the tax breaks rejected the criticism that the provisions were giveaways sneaked into the fiscal cliff package. Senate Democratic aides noted that the package of tax extenders had passed the Finance Committee with overwhelming bipartisan support in August and had always been in consideration for inclusion in a year-end fiscal bill.

“This was not some last-minute deal,” said Sean Neary, a spokesman for Sen. Max Baucus (D-Mont.), the Finance Committee chairman. The fiscal cliff deal preserves “vital tax cuts” for small businesses, working families, teachers and military families, he said.

Included in the bill is an extension of a tax break for film and television productions that shoot in the United States, allowing them to expense the first $15 million of costs (or $20 million if the production occurs in economically depressed areas). The incentive will cost an estimated $266 million in 2013.

Movies such as “Up in the Air” and “Transformers: Dark of the Moon” and television shows such as “Royal Pains” have benefited from the provision, said Kate Bedingfield, a spokeswoman for the Motion Picture Assn. of America.

The “NASCAR tax break,” which will cost an estimated $46 million this year, allows motor-racing tracks to depreciate assets faster than other businesses.

“This tax provision is a job creator,” said Rep. Mike Thompson (D-St. Helena), whose district includes the Sonoma Raceway. “Without it, folks would see job losses.”

Steve Ellis, vice president of Taxpayers for Common Sense, a group that advocates cuts in Washington spending, said he was surprised to learn the provisions had made it into the bill.

“I guess I shouldn’t have been,” he said. “They’re like the cockroaches of Washington policy. They always survive.”

joseph.tanfani@latimes.com

matea.gold@latimes.com