Senate panel revives dozens of tax breaks

WASHINGTON -- The Senate's tax-writing panel voted to renew dozens of tax breaks for businesses like biodiesel and wind energy producers, even as the GOP-controlled House passed symbolic legislation to erase them and create a new tax code with lower rates and fewer special interest tax breaks.

The $200 billion-plus package was approved by the Senate Finance Committee Thursday on a bipartisan 19-5 vote. It was anchored by a two-year provision to protect middle- and upper-income taxpayers from being hit by the alternative minimum tax, shielding them from higher levies originally meant to prevent the rich from escaping taxes altogether.

The bill faces an uncertain future and is likely to get lumped into a year-end debate in which lawmakers tackle the so-called fiscal cliff -- a combination of the expiration of Bush-era tax cuts and $110 billion in automatic spending cuts to the Pentagon and domestic programs that, taken together, have the potential to drive the economy back into recession.

The action came as Congress limped out of town for a five-week vacation. The House also passed drought relief legislation and reprimanded one of its members, while a cybersecurity bill ran aground in the Senate. The Senate Appropriations panel approved a $604 billion Pentagon spending bill while rejecting a bid by Republicans to require defense contractors to send out notices of possible job layoffs due to the possible cuts.

The cost of Thursday's package ballooned by more than $50 billion since its release Wednesday, including a production tax credit for wind and other renewable energy producers of electricity criticized by presumptive GOP nominee Mitt Romney. That provision was initially targeted for elimination, but garnered critical support from Republicans like Charles Grassley of Iowa.

Sen. Jon Kyl, R-Ariz., engineered the revival of a tax break for builders of NASCAR tracks and other motorsports facilities after it had originally faced the chopping block. He was one of five conservative Republicans who opposed the overall measure, however.

Panel members claimed the exercise in legislative sausage making was actually a step forward for tax reform because they had summoned the courage to allow almost 20 tax breaks to expire. They included a much-criticized tax credit for ethanol producers.

Top panel Republican Orrin Hatch of Utah -- a longtime proponent of a popular tax credit for businesses that invest in research and development -- said Thursday's developments represented progress given that the number of tax breaks in the annual "extenders" debate had ballooned from 42 in 1998 to 154 last year.

"The tide is turning," Hatch said. "For the first time in my 21 years on this committee, we are deliberately moving in the opposite direction."

"It's the first step in a long journey," said Kent Conrad, D-N.D., though he acknowledged "there is a certain irony" to claiming the renewal of all the tax breaks is a step forward for tax reform.

Opponent Tom Coburn, R-Okla., however, calculated that the Senate measure would only save taxpayers about $6 billion -- a pittance compared with this year's expected deficit of $1.2 trillion. He said the panel's moves were a step backward for hopes of doing tax reform next year.

"That's better than nothing. But it ain't anywhere close to where we have to be if we're going to fix this country," Coburn said.

"You want the pressure jacked up to do tax reform? Don't renew any extenders," Coburn said. "That's how you get tax reform done."

The tax breaks package is advancing even as efforts to prevent the expiration of numerous Bush-era tax cuts have come to an election year impasse over whether to extend the full range of Bush tax cuts or allow expiration of those enjoyed by people earning more than $200,000 a year and couples making more than $250,000. President Barack Obama has demanded that these tax cuts be terminated.

The House voted to fully renew the Bush tax cuts on Wednesday. On Thursday, it voted along party lines 232-189 to pass legislation putting the House on record in support of tax reform that would lower the top income tax rate to 25 percent, financed by cleaning out the nation's loophole-cluttered tax code. The tax reform effort wouldn't begin until next year.

Democrats said the GOP tax reform plan would raise taxes on the middle class while awarding millionaires with disproportionately large tax cuts. To cut the rates so low would require eliminating popular tax breaks like the mortgage interest deduction, they say.

"The only way to finance these massive tax cuts for the highest earners is to eliminate or significantly curtail provisions that support the middle class," said Rep. Sander Levin, D-Mich.

The getaway day action on Capitol Hill included:

--House passage of disaster assistance to livestock producers reeling from rising feed prices caused by the drought that has hit much of the nation. The Senate, pressing for action on an omnibus farm and food bill, didn't act on the measure.

--A GOP-led filibuster of Senate legislation to protect the U.S. electrical grid, water supplies and other critical industries from cyberattack and electronic espionage.

--A unanimous House voice vote to reprimand California Democrat Laura Richardson for forcing her congressional staff to do campaign work and violating codes of conduct for government service.

The Senate measure combined more than 50 provisions, including popular tax breaks for individuals like the deduction for state and local sales taxes in states without an income tax and a tax-free benefit for employees who take mass transit of up to $240 a month.

Popular business tax breaks in the measure include provisions to allow small businesses to write off purchases of equipment, tax credits for biodiesel, and a tax credit for producers of renewable electricity through sources like wind, biomass, geothermal energy and hydropower.

For his part, Coburn lost an attempt to kill tax credits for manufacturers of energy efficient appliances. Manufacturers of dishwashers can claim a maximum $75 credit but makers of refrigerators can get credits of up to $200, while manufacturers of clothes washers can reap tax subsidies of up to $250. He also lost a bid to scale back the wind energy tax break.

Sen. Ron Wyden, D-Ore., a longtime sponsor of tax reform, won a committee vote to revive a tax credit of $2,500 for purchasers of electric motorcycles. Oregon is home to two manufacturers of high-end electric motorcycles, Arcimoto and Brammo, Inc

"I've spent 10 years working for tax reform," Wyden said after the vote. "But until you get it, you're not a purist who sits around and says, `Oh, my constituents don't matter."'