By passing legislation to avert at least part of the so-called “fiscal cliff,” the combination of tax increases and spending cuts that was set to take effect at the beginning of the year, Congress avoided income tax increases on households that make less than $450,000 a year. The deal still raises taxes on 77 percent of American households, though, because Congress did not include an extension of a temporary payroll tax cut meant to stimulate the economy.
What Congress did manage to extend, however, was a set of corporate tax breaks that benefit NASCAR, the professional stock car racing circuit, as well as breaks for filmmakers and Puerto Rican rum producers:
— SEC. 312. EXTENSION OF 7-YEAR RECOVERY PERIOD FOR MOTORSPORTS ENTERTAINMENT COMPLEXES.
— SEC. 317. EXTENSION OF SPECIAL EXPENSING RULES FOR CERTAIN FILM AND TELEVISION PRODUCTIONS.
— SEC. 329. EXTENSION OF TEMPORARY INCREASE IN LIMIT ON COVER OVER OF RUM EXCISE TAXES TO PUERTO RICO AND THE VIRGIN ISLANDS.
The legislation also extended two provisions — known as “active financing” and “look-thru” — that make it easier for corporations to shelter profits overseas. Overall, the package of corporate tax breaks extended in the legislation cost $40 billion a year, and corporate tax breaks in total cost the government more than $100 billion a year.
Meanwhile, there was bipartisan opposition to extending the payroll tax cut, since Republicans oppose it outright and many Democrats feared it would undermine Social Security, which is financed by payroll tax revenues. Proposals to replace the payroll tax cut with another provision, like the Making Work Pay credit, were never seriously considered as part of the final package. The expiration of the payroll tax cut (or failure to find a replacement) was the most economically damaging piece of the tax side of the fiscal cliff, according to the Congressional Budget Office.