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Railroad Maintenance: One Tax Credit That Is All but Permanent

Karen Bleier/AFP/Getty Images
The railroad maintenance tax credit — which can offset up to 50 percent of the amount a freight carrier spends on maintaining its infrastructure — exemplifies temporary provisions in the tax code that have become entrenched features of the business tax landscape.

The railroad maintenance tax credit — or 45G credit, as it is called after the section of the revenue code in which it appears — is a shining example of seemingly temporary provisions in the tax code that have become entrenched features of the business tax landscape. Born of apparent good intentions in 2004, the rail maintenance provision has been extended twice, in 2008 and 2010. It is now being considered for another renewal, along with dozens of other targeted tax breaks for businesses and individuals collectively known as “extenders,” even as Congress tries to close the country’s gaping annual deficits and find alternatives to crushing automatic increases in tax rates for individual filers.

The provisions have survived verbal attacks against “crony capitalism” and calls from all sides for a simpler, more predictable tax code. They’re so embedded in the tax code that they’re not really even anomalies any longer since the entire tax system, with its expiring individual rates and tax “holidays,” has come to resemble a giant extenders package.

Origin Stories

Doing away with tax extenders has been as difficult as changing the course of major rail lines.

Earlier this year, a House Ways and Means subcommittee held a hearing that spoke to the difficulty of overhauling the tax code. Ostensibly held to provide a critical look at individual tax extenders, it consisted largely of members of Congress testifying to the benefits of everything from tax deductions for Puerto Rican rum producers to accelerated write-off periods for the costs of motor sports complexes.

A consistent theme was the virtue of providing tax relief to small business, and that’s the narrative the American Short Line and Regional Rail Association and its lobbying firm, Chambers Conlon and Hartwell, have pushed.

According to a 2011 ASLRRA booklet, “the story of the short-line industry is the story of local entrepreneurs saving and rehabilitating the previously money-losing branch lines of Class I Railroads” such as Union Pacific. If not for these entrepreneurs, the railroads might have been “abandoned and lost forever.”

According to several studies on the subject, the largest railroad companies began to sell off sections of track that were considered remote and difficult to maintain once given the opportunity under railroad deregulation Congress enacted in 1980. But many in the railroad industry saw this as an important step in meeting rational supply-and-demand dynamics in the marketplace. It immediately allowed some businesses to specialize and profit from short lines, which were still an important part of the country’s rail network.

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