The age-old tradition of giving special tax breaks to Congressional favorites continues in the recently passed House and Senate tax bills. Under the guise of middle class tax relief, billions in tax breaks would go to oil and gas companies, profitable corporations and rich farmers.

Oil Depletion Allowance — Ever since World War I, oil and gas producers have received a subsidy for oil production. Called the percentage depletion allowance, this tax break allows oil and gas companies to deduct more than the value of their initial investment. The Joint Committee on Taxation estimates that this provision costs taxpayers $500 million per year. While the House left this provision alone, the Senate bill would actually expand this tax break by eliminating current deduction limits. When oil prices are low, oil companies will be able to deduct more from their taxes than the income they collect from their oil sales revenue. Friends of the Earth, a leading environmental group, identified this tax benefit as one of the 15 most environmentally harmful tax breaks even before the proposed expansion.

Alternative Minimum Tax (AMT) — Not to be outdone, the House would confer enormous tax breaks on profitable corporations by scaling back the AMT. Enacted as part of the 1986 Tax Reform Act, the AMT ensures that profitable corporations pay their fair share. In the early 1980s, many profitable corporations paid no taxes at all.

Originally, Chairman Bill Archer of the Ways and Means Committee had proposed eliminating this tax outright. Instead, the House bill would gut provisions of the AMT that prevent companies from receiving such large tax breaks on their capital equipment that they can owe no taxes. Robert Mclntyre of Citizens for Tax Justice, whose work was integral to the adoption of the AMT, predicts that the House bill would cost taxpayers far more than the $2 billion per year estimated by Chairman Archer.

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Rich Farmers & Capital Gains — Farmers operate on a cash accounting basis. This means that, unlike many businesses, they can deduct their full capital costs each year. The House bill would reduce the top rate on capital gains from 28 percent to 20 percent. As a result, a wealthy farmer could deduct the cost of raising animals at the top income tax rate of 39.6 percent and only pay 20 percent on the animals' increase in value when sold. According to the Center for Rural Affairs in Nebraska, the House bill would provide a competitive advantage to large high-income farms over smaller modest-income farms.

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