J. TODD FOSTER: Reaching Into The Federal Piggy Bank

What does a $192 million tax rebate for rum producers in Puerto Rico and the Virgin Islands have to do with saving America’s financial system from collapse?

That’s a $64,000 question. Actually, it’s an $850 billion question.

Aside from the $700 billion bailout/rescue plan Congress passed last week, an additional $150 billion in tax incentives, tax rebates and pork-barrel projects were tacked on to ensure passage in the Senate and House.

Few economists disagree that our nation’s credit markets were in danger of drying up without federal intervention. But sending an additional $150 billion worth of little piggies to market is sure to come back and bite Congress on the haunches.

I had two detailed discussions last week with U.S. Rep. Rick Boucher, D-Va., about the rescue (if you’re for it) legislation or the bailout (if you’re against it) package.

I personally think the legislation was a necessary evil to stop a greater calamity. When banks can’t even lend to each other, recessions turn into great depressions. In September alone, another 159,000 American jobs vanished. If companies can’t borrow short-term loans to meet payrolls, stock their shelves or expand or improve their businesses, unemployment lines swell.

The learned Boucher and I agree on that. Where our opinions diverge is on extending the tax breaks and earmarks.

“These are part of normal tax provisions that have been passed again and again and again for the better part of a decade,” Boucher said Friday. “People who don’t want to pass a rescue plan will use any argument they can. ... That [add-ons] was part of the reason they were able to get [74] votes in the Senate.”

Some earmarks certainly are better than others.

The economic rescue bill that passed by 74-25 in the Senate and 263-171 in the House shields 20 million Americans from paying the alternative minimum tax, Boucher noted.

The AMT went into effect in 1970 and was aimed at the super rich – families that found so many loopholes they paid little to no taxes at all. President Ronald Reagan expanded the AMT in 1986 to hit more people. But since it was never indexed to inflation, the AMT now threatens even the upper-middle class.

So each year, Congress shields upper-middle wage earners from the AMT, and this provision was included in the so-called bailout bill, Boucher said.

Then there are the questionable earmarks, the ones that anger taxpayers and typify the ways of Washington.

There’s the $2 million tax break for the makers of wooden arrows for children; that earmark was pushed by two Oregon senators for an archery business in their home state.

How about the $100 million tax break to the owners of auto racetracks? Or the $148 million in reduced tariffs for the U.S. makers of wool fabric that use imported yarn? Certain corporations operating in American Samoa will save $33 million. And film and television companies that keep their production in America will save nearly half a billion dollars over 10 years. That bill was sponsored by Rep. Diane Watson, a Democrat from – you’ll never guess – Los Angeles.

The earmarks were tracked by a congressional watchdog called Taxpayers for Common Sense. Vice President Steve Ellis told reporters last week that senators larded up the rescue bill with pork to swing a few votes in the House.

There were two aims, he said: “One is they’re hoping this will turn a few votes, that people who support some of these provisions will forget about the $700 billion and concerns they may have on that, and say, ‘If you give me a few million in tax breaks for my constituents, I’ll go along,’ ” Ellis said in a story by the San Francisco Chronicle. “The second reason is that this is your standard, run-of-the-mill, end-of-year politics. You take a piece of must-pass legislation, you cram whatever you want in there and you dare the House to oppose it. It’s really a pretty cynical maneuver.”

It worked, apparently.

My favorite earmark was the one benefitting the rum industry. To me, passing a $700 billion financial package will induce plenty of people to drink – so the rum folks have double-dipped into good fortune.
Maybe it’s just a coincidence that the Bacardi family in South Florida and Puerto Rico have donated $31,000 in campaign funds this year – $24,000 of it to John McCain, Rudy Guiliani and Mitt Romney, according to the Web watchdog opensecrets.org.

Three of Barack Obama’s top five political donors are financial firms: Goldman Sachs, $748,880; JP Morgan Chase & Co., $493,469; and Citigroup Inc., $467,849.

Four of McCain’s top five donors this year are financial services companies: Merrill Lynch, $306,813; Citigroup Inc., $277,251; Goldman Sachs, $234,345; and Morgan Stanley, $234,272.

These campaign donations in no way detract from the need to restore liquidity to America’s financial markets through some sort of government intervention. But they paint a portrait of piggies lining up at the trough, of politicians spending your tax dollars like drunken sailors – sailors who have imbibed in rum manufactured by companies that gained huge tax breaks while the rest of us are fighting to save our homes, fill our gas tanks and save for our children’s college tuition.

J. Todd Foster is managing editor of the Bristol Herald Courier and can be reached at jfoster@bristolnews.com or (276) 645-2513.