In 2002, The Century Foundation convened the Working Group on Tax Expenditures to examine and propose reforms to the tax code. The resulting report, Bad Breaks All Around, identifies twelve tax breaks with little or no economic justification. These “dirty dozen” are no less ripe for the chopping block a decade later, as Congress finally takes up the task of simplifying the tax code. Follow along at Blog of the Century and on the “Dirty Dozen” expenditures homepage as we reintroduce each of the “dirty dozen” and explain why it's long past time to eliminate these costly tax breaks.
For years, the timber industry profited from a number of unusually large tax breaks—including a 60 percent capital gains exclusion for individuals and a special 28 percent corporate capital gains tax rate—before they were eliminated by the 1986 Tax Reform Act. Two significant tax breaks, however, remain: one that allows companies to deduct multi-period timber growing costs, and another that allows certain timber income to be taxed at the lower capital gains rate.
Together, these tax breaks cost the Treasury around $400 million a year in lost revenue, and nearly $4.8 billion in the ten years since The Century Foundation's 2002 report Bad Breaks All Around first recommended eliminating timber subsidies. Absent any convincing reason why taxpayers should continue to support the timber industry, which has enjoyed both strong profits and a growing market capitalization, it is time for these handouts to end.