The tax code is so peppered with special giveaways that companies such as Facebook end up getting refunds, and high-profile athletes and artists use their tax-free foundations to give friends jobs while avoiding taxes — all leading to higher income tax rates for the rest of us, Sen. Tom Coburn charges in a new report being released Tuesday.
Baseball owners are able to claim their players “depreciate” over time, the same way farms are able to claim their tractors depreciate, thus entitling the already wealthy sports team owners to tax breaks that can offset much of the cost of operating a team. Meanwhile, sports leagues such as the NFL, a billion-dollar enterprise, are formed as tax-exempt organizations.
Mr. Coburn, Oklahoma Republican, is unveiling the report even as his colleagues are pushing to quickly pass a package of breaks for everything from wind turbines to subway ridership to tuna canneries.
“If you support making the tax code fairer and flatter, voting to revive expired tax giveaways for special interests has the exact opposite consequence,” Mr. Coburn said in a statement Monday, just ahead of the release of his report, entitled “Tax Decoder.”
The senator, who is retiring at the end of this year, said he hoped the report, which runs to more than 300 pages detailing hundreds of tax breaks, would serve as a blueprint for his colleagues to revamp the tax code after he’s gone.
But the appetite seems slim for now.
The bill to extend nearly four dozen special breaks for another year cleared the House easily last week, 378-46, and is headed for a similar drama-free vote in the Senate this week. It comes at a total cost of $81.4 billion in lost revenue in 2015.
Revamping the tax code and slicing out special interest breaks is a favorite rallying cry for political leaders on both sides of the aisle, and everyone from President Obama to House Speaker John A. Boehner had said a deal should be possible. But what’s a valuable tax break to Mr. Boehner is a corporate giveaway to Mr. Obama, and vice versa, leaving little room for compromise.
Senate Democrats and House Republicans had thought they’d reached agreement on a smaller deal making many of the business breaks permanent so that Congress wouldn’t have to revisit them every year, as it’s doing once again in a year-end crush of legislating.
But a veto threat from Mr. Obama scuttled the deal and left bad feelings on both sides.
“How often do you hear a president threaten a veto of negotiations? And how often do you find that extraordinary threat ratified by people who’ve been involved in the negotiations?” said Sen. Orrin G. Hatch, the Utah Republican who will assume the chairmanship of the Senate Committee on Finance next year.
Meanwhile, even as they call for a flatter tax code, House Republicans last week congratulated themselves for passing a new tax break for disabled Americans, allowing them to save money tax-free to use for schooling, medical expenses or special transportation needs.
It’s similar to flexible savings accounts, or FSAs — a program Mr. Coburn takes aim at in his new report. At a cost of nearly $35 billion last year, FSAs are one of the big-ticket health care breaks. But Mr. Coburn said there’s evidence that rather than encouraging consumers to shop around, the breaks serve as an incentive to pay more. In one case pulled from news reports, a man said the break allowed him to buy Dolce & Gabbana eyeglasses rather than the “no-name glasses” that were covered by his insurance.
Mr. Coburn didn’t dislike all tax breaks. He said health savings accounts, or HSAs, which are similar to FSAs but strictly regulated to apply to approved medical expenses, are a key incentive to encourage Americans to take control of their health spending.
“Congress should continue to monitor the effectiveness of HSAs going forward, but there appears to be little need for reform at this time,” he concluded.
Programs he did want to ax include:
• The “parsonage housing allowance,” which he said enabled clergy to build million-dollar homes for themselves while double dipping on tax breaks, collecting housing stipends as tax-free income and then getting the extra parsonage break.
• Sports team owners who can claim a depreciation tax credit on their players, arguing that, just like equipment, the players’ worth decreases over time.
• Athletes and Hollywood stars who form tax-exempt organizations that they then use as tax shelters, throwing parties or paying employees’ salaries from the tax-exempt accounts while dedicating almost no money to charitable works.
Mr. Coburn, citing news investigations, said singer Kanye West’s foundation spent more than $1 million in 2009 and 2010 but “gave virtually nothing” to charity. Fellow performer Lady Gaga’s Born This Way Foundation raised $2.6 million but only gave away $5,000 in grants, Mr. Coburn’s report says. She defended her foundation after the reports surfaced, saying her foundation runs its own projects rather than paying grants to other organizations to do good works.
Mr. Coburn said he tried to find fellow senators who would sponsor a bill to halt tax breaks to sports leagues with income of more than $10 million a year, approaching more than a dozen colleagues. Just one, Sen. Angus S. King Jr., Maine independent, agreed to sign on, Mr. Coburn said.
“When the office of a Democrat senator was asked to choose a tax credit we could target together, the senator’s staffer likened killing tax giveaways to ‘clubbing baby seals,’” Mr. Coburn said in the report.