Tax Break for Arrows? Why It's Part of the Bailout

Among all the sweeteners added to the $700 billion financial bailout bill passed by the Senate, none has attracted more attention than a tax break for wooden archery arrows used by kids.

The exemption would eliminate a 43-cent excise tax on the arrows, which probably raises less than $200,000 a year for Uncle Sam. But the tax, which is more than the cost of the arrows themselves, has severely undercut archery programs for youths around the country.

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Critics of the add-ons were quick to see the arrow provision as proof of Congress’ inability to avoid putting self-serving and trivial items—read pork—in otherwise important legislation. In a CNBC.com poll of the worst items in the bill, the arrow provision was the clear winner. See poll below.

But the president of Rose City Archery, the Oregon company behind the measure, insists that the real beneficiary of ending the tax would be kids’ archery programs, including those offered by the Boy Scouts.

“Rose City does not make one penny on this thing and does not save one penny,” Jerry Dishion tells CNBC. “The real beneficiaries of this are kids archery programs around the country.”

Rose City, he adds, has offset the drop in US sales due to the tax with increased exports of arrows.

A Congressional source says the exemption was aimed at fixing an error when the excise tax was enacted four years ago. The tax was intended for much more expensive adult arrows and was never meant for much cheaper childrens’ arrows. 

Dishion says he has been trying since 2005 to reverse the 120 percent tax on kids’ arrows. He first enlisted the help of his congressman, and then turned to his two Senators, Ron Wyden and Gordon Smith.

The provision was included in the version of the bailout bill passed by the Senate Wednesday, which started out as a three-page proposal by Treasury Secretary Hank Paulson but is now more than 400 pages. The House is expected to vote on the measure on Friday, where the outcome is uncertain.

Kids' arrows costing 30 cents to make had an additional 43 cents tacked on through the federal excise tax. The extra cost proved too much for low-budget archery programs offered by schools, clubs and Boy’s and Girl Scouts around the country, who quickly canceled orders, Dishion said.

Domestic orders at his business quickly dropped 40 percent, forcing him to scramble to replace these with export sales. Nowadays exports account for 60 percent of total sales, up from 40 percent in 2004.

Most media reports cited the arrow attachment as an example of pork-barrel politics, a view reinforced by blogosphere commentary that sizzled with sarcasm.

“The American people are in a crisis of confidence, they do not trust Congress and they see this and it only confirms to them that Congress cannot be trusted to be above board and put their interests first without resorting to sneaky stuff that seems to be all about their own self-interest,” said Leslie Paige, of Citizens Against Government Waste.

Dishion said he merely collected the excise sales tax and passed it on to Uncle Sam. But those collections have been declining every year—they are now between $30,000-40,000—because of the evaporating archery programs.

He said three or four other arrow American manufacturers are affected by the tax, which is not imposed on importers.

The Congressional source said Chinese importers in particular were gaining market share as a result of the excise tax.

Dishion said the other manufacturers did not join him in in his efforts and appeared resigned to be ground out of existence, even though they could also presumably benefit from this exemption.

Jennifer Hoelzer, spokesperson from Senator Wyden, said they did not know the provision was being added to the bailout package even though the Senator had introduced the provision earlier during the current Congress.

Senator Smith had introduced the same provision in the previous Congress.

The provision was part of a "Tax Extender" bill—a collection of tax measures—that was attached to the bailout bill that passed the Senate on Wednesday.

Asked who instigated the tax in the first place, he suggested intra-industry favoritism exhibited by the Archery Trade Association of American, which did not return phone calls.

Founded in 1932 in Portland, Rose City Archery is privately-held and is now based in a small town in southwestern Oregon, Port Mrytle.

It is the world’s largest manufacturer of arrow shafts made from a special cedar tree (Port Orford), which is well known for use in aromatherapy, cosmetics, personal and environmental deodorizers, pet grooming products, insect repellents, cleaners and disinfectants, according to the company website.

© 2012 CNBC.com