How 54 Words Cost the US Treasury $1 Billion
Policy + Politics

How 54 Words Cost the US Treasury $1 Billion

The Fiscal Times/iStockphoto

As is often the case when Congress passes a massive bill just hours before rushing for the exits on a holiday break, the contents of the 2,000-plus page omnibus spending bill that was adopted last week are only now becoming clear. A case in point, reported out by the New York Times on Monday is the addition of a few dozen words – 54 to be exact – that will cost the U.S. Treasury more than a billion.

The addition to the bill made it possible for hotels, restaurants, casinos, and the Wall Street firms that own large parts of them, to continue using a tax dodge that allows ownership of buildings where they do business to be transferred to a Real Estate Investment Trust, dramatically slashing tax obligations.

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The move appears to have had the backing of Senate Minority Leader Harry Reid, a Nevada Democrat whose state is highly dependent on the hospitality business, and who has accepted sizeable campaign contributions from the industry.

It was hardly the only project funded by the deal that distributes pork to lawmakers’ constituencies. For example, The Times also identified funding to build new ships that both the Coast Guard and the Navy say they neither need nor want.

Another provision in the bill that didn’t get a lot of attention brought an end to a long-simmering battle over the United States’ relationship to the International Monetary Fund. A vehicle for distributing foreign aid, the Fund is backed by contributions from many nations. But the largest donor has historically been the U.S., a position that gives Washington more than 16 percent of the voting rights on the Fund board and, more importantly, veto power.

In 2010, the Obama administration had supported much-needed reforms at the IMF that would increase the contributions of all member countries and reallocate voting rights. The changes ran into resistance in Washington, though, from members of Congress who feared diluting U.S. influence over how the Fund lends out its money. Another concern was the rising influence of China – the reforms would greatly increase China’s voting power on the board, from less than 4 percent to 6 percent.

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Lawmakers were able to reach a compromise that diminished conservative opposition to the reforms, while creating potential new sticking points.

Under the deal, the U.S. is required to seek repeal of a “systemic exemption” that allowed the IMF to play a major role in the bailout of Greece without demanding significant safeguards, such as treating major infrastructure projects as collateral.

The deal would also obligate the IMF to seek the permission of the U.S. Congress to any decisions to allow a country “extraordinary access” to IMF funding.