Saturday will be the 150th running of the Belmont Stakes. After having won the Kentucky Derby and the Preakness, nine other horses will try to deny Justify’s bid for the third jewel in horseracing’s Triple Crown. The winner gets $800,000, if Justify happens to win, his total earnings will be $3.3 million. And that doesn’t even include any future race prizes or stud fees, which will total millions of dollars more. But in the eyes of the tax code, these three-year old thoroughbred horses no longer have value: owners can write off the total investment in the time it takes horses to get a chance at the Triple Crown.
Senate Majority Leader Mitch McConnell wrote the provision and stuffed it into the 2008 farm bill. It should come as no surprise that the Senator represents Kentucky, center of gravity for horseracing in the United States. Considering it is called the sport of kings, it is also not surprising that deducting your racehorse (or technically “Extension of Classification of Certain Racehorses as 3-Year Property”) can’t be considered some sort of middle class tax break. The cost of buying, raising, and training a thoroughbred can run in the hundreds of thousands of dollars – per month. As a narrow, routinely extended provision, it can’t be called good tax policy either.
The original provision included in the 2008 farm bill was set to expire in two years. But after that it caught a ride on the little caboose that could, the tax extenders package. This hodge-podge of dozens of provisions routinely gets enacted for a year or two, sometimes even retroactively. The most recent extension was a retroactive one that had the provisions expire on December 31, 2017. Retroactive extensions aren’t wholly uncommon, but this extender package was attached to the Bipartisan Budget Act of 2018 passed on February 9, 2018, meaning the moment after they were extended, they once again expired! These cynical, short-term extensions are costlier than they appear. Under Congressional budget rules, two year extensions which are passed five times in a row only score for two years each time, but in reality have a much greater ten year cost. The narrow targeted provisions are also the opposite of good tax policy.
The racehorse provision isn’t even the only one in the package related to racing. There’s a provision to shorten the depreciation period for improvements at motorsports complexes, also known as NASCAR tracks. There’s another one that was used to build Diageo – the British-based, largest liquor conglomerate in the world – a new distillery in the U.S. Virgin Islands, inducing them to move Captain Morgan production from Puerto Rico to USVI.
But that’s not all, there are provisions for film and television production (expanded to include live theatrical productions at the behest of the Senators from Broadway and Branson), one for railroad track maintenance, a special rate for timber gain, credit for two-wheeled plug-in electric vehicles (also known as electric motorcycles), and a host of others. At the end of last year Congress enacted the most aggressive tax rewrite in more than 30 years. And they didn’t find space for these provisions, which means they weren’t important. Congress should exterminate the extenders.