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Federal Tax Loopholes: They're Like a Mafia Protection Scheme Where Big Corporations Profit

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In reality, the employee giveaway cost Facebook nothing. It neither expanded the company's expenses nor increased its liabilities. McIntyre compares it to an airline letting workers fly free in seats that would otherwise have been empty. The airlines don't receive a break because it doesn't cost them anything.

But thanks to some inventive paper shuffling, Facebook will receive a $500 million tax refund next year.

A similar loophole encourages companies to offer executives those bloated compensation packages. When CEO wages began to spur outrage in the early Clinton years, Congress decided that companies could no longer deduct executive salaries over $1 million as business expenses. But it also created a loophole that rendered its crackdown meaningless. Exempted were "performance based" bonuses that surpass that $1 million threshold. A grand new corporate giveaway was born.

Suddenly, CEOs were being slathered with stock options. Companies expensed the giveaways without ever opening their wallets, leaving taxpayers to subsidize caviar compensation plans.

Last year, the five highest-paid CEOs collectively took home $232 million — while their companies received a tidy $81 million in tax breaks.

6. My other home's a yacht.

Established in 1913, the mortgage interest deduction is one of the oldest and most sacred breaks in the code. It's meant to encourage homeownership and stabilize communities.

It doesn't really work, since most people will buy homes whether they receive a break or not. Countries like Australia and Canada have similar ownership rates to ours without offering the deduction. But at least congressmen back in 1913 occasionally tried to do something beneficial for the country. Today's Washington is more interested in exploiting such beneficence. Take the yacht deduction.

The luxury sailing industry was able to buy its way into the mortgage break when Congress officially declared boats to be homes. But not just any boats. The rules require that they have sleeping quarters, a kitchen, and a toilet, leaving just 3 percent of U.S. boat owners to qualify.

"The mortgage deduction was never targeted for that," says Congressman Tim Walz (D-Minnesota). "It was meant to make homeownership more affordable for the middle class."

So Walz wrote the Ending Taxpayer Subsidies for Yachts Act, hoping to bar the über-wealthy from sponging off the mortgage deduction. Once again, Congressman Dave Camp refuses to let it come up for a vote.

That leaves everyday taxpayers to subsidize toys like Microsoft CEO Paul Allen's $200 million yacht, which comes equipped with an indoor pool, basketball court, and its own submarine.

"It's a loophole in the tax code that benefits a few people at the very top," says Walz, a sergeant major in the National Guard and former teacher. "I certainly feel if they want to grab their luxury liners, I'm glad they do. And I'm glad we have people making them. I'm just not certain we subsidize that."

5. Big Oil's Cadillac welfare.

Last month, Mitt Romney traveled to Iowa, where wind energy has become an economic force, responsible for 7,000 jobs and 20 percent of the state's electricity. He announced that, as president, he would kill the $3.3 billion in tax incentives that now go to this nas­cent form of electricity. In Romney's eyes, the industry has had more than enough time to stand on its own two feet.

"He will allow the wind credit to expire, end the stimulus boondoggles, and create a level playing field on which all sources of energy can compete on their merits," Romney spokesman Shawn McCoy told the Des Moines Register.

It's a laughable position. After all, Romney has announced no similar crackdown on a much older and larger welfare queen: Big Oil.

The five largest U.S. oil companies collect a spectacular $20 billion a year in tax breaks. And they'd prefer that wind farms not compete for that lucrative welfare dollar. During this year's presidential race, the industry has paid Romney $3.4 million via campaign contributions to ensure that wind goes away.

Technically, the oil giveaway is supposed to defray the cost of searching for new sources. But even George W. Bush realized the industry didn't need subsidies back in 2005, when the price of a barrel was at $55. "We don't need incentives to oil and gas companies to explore," he said at the time. "There are plenty of incentives."

These days, the price of a barrel routinely hovers around $100. But the five biggest companies — BP, Chevron, ConocoPhillips, Exxon­Mobil, and Shell — still get their breaks, despite collective record profits of $137 billion last year.

"The oil industry is doing fine," says Johnson, the University of Texas tax expert. "They don't need or deserve a dime of subsidy. It's all money thrown away to make shareholders richer. The private market will provide any subsidies by increasing the price. It's time to get the government out of the business of special subsidies. It's like Cadillac welfare."

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Chris Parker
Contact: Chris Parker