Watching the details
by digby
Here's a tax expert criticizing Jon Stewart for being obtuse about the president's vow to cut "tax expenditures" as a way of raising taxes. Stewart wondered what side of the ledger this really falls on:
You had a lot of fun with President Obama’s pledge to make “spending reductions in the tax code”:
What??? The tax code isn’t where we spend. It’s where we collect. … You managed to talk about a tax hike as a spending reduction. Can we afford that and the royalty checks you’ll have to send to George Orwell?
Jon, meet me at camera 3.
I know you say it’s fake news, but when you riff on policy, people take you seriously. And, with respect, in this case, you don’t know what the hell you’re talking about.
For 40 years, tax geeks like me have been trying to explain that there’s a boatload of spending programs masquerading as tax cuts, and they’re multiplying. Their number increased by almost 60 percent between 1987 and 2007.
The fact that pols can claim credit for “tax cuts” (good) rather than “spending” (bad) has made them irresistible to legislators of both parties.
This is correct. But Stewart is right about the Orwellian language and there's reason for it --- they've been hiding government spending in the tax code for several decades. But that's because the Republicans made government spending a dirty word.
This also shows how phony the "fight" between Grover Norquist and Tom Coburn over Coburn's willingness to entertain "raising taxes" through cutting the "tax expenditures" really is. What Coburn is calling a brave sacrifice and Norquist is calling a betrayal of conservative principles is actually just another spending cut. Since when are they against that?
Here's how the Center for American Progress describes tax expenditures:
Tax expenditures are, quite simply, spending programs implemented through the tax code. These programs give people and businesses special tax credits, deductions, exclusions, exemptions, deferrals, and preferential rates in support of various government policies. Some of these programs help people save for retirement, buy a home, or pay for college; others encourage companies to invest in green energy technologies or build nuclear power plants; they even subsidize corporations that drill for oil or purchase real estate; and much more.
The government uses both tax expenditures and direct spending to support its policies. Direct spending is when the government takes taxpayer dollars and gives them to others to spend for a specific purpose. The government uses tax expenditures to accomplish the same goals as direct spending, but it transfers money by lowering taxes for an individual or company instead of giving them the money.
Consider this example to see the similarities between direct spending and tax expenditures: The government wants to create a program that provides $10,000 to every individual who weatherizes his or her home. The government can deliver the subsidy in one of three ways: (1) cut a check for $10,000, (2) create a tax expenditure like a refundable credit worth $10,000, or (3) use a combination of direct spending and tax expenditures. In all three cases the individual who weatherizes his or her home receives $10,000 from the government.
What makes tax expenditures different from other forms of government spending?
The government uses tax expenditures and direct spending for the same purposes, but tax expenditures receive different treatment in two key ways. Most tax expenditures are not subject to the same annual appropriations process as other forms of spending. This means they are less likely to be scrutinized.
Second, tax expenditures appear to be tax cuts instead of spending because they transfer funds to businesses and individuals through tax subsidies. It is therefore generally easier to win votes for tax expenditures than direct spending. And members of Congress often pursue their priorities through tax expenditures as a result, even if direct spending would be more effective and cost less.
And there's real money there, a trillion a year or so. And I think everyone knows that a whole lot of it is in the form of corporate loopholes that are the result of money changing hands on Capitol Hill. Liberals would be happy to see these go and some of them might. Unfortunately, the pending "deal" is that corporations will get their rates slashed in return. The idea seems to be that there will be more revenue when all is said and done. Do you believe that?
I just don't see any politicians signing on to higher taxes for corporations in an election year in which one side is braying like donkeys about how American corporations pay the highest taxes in the world. Moreover corporate accountants are capable of adding up the numbers and figuring out if they are paying more kin taxes --- and I haven't seen the kind of civic mindedness coming from that sector lately that would lead me to believe they will stand for it. No, their taxes will not go up.
The tax expert says that there are other sorts of tax subsidies that are rip-offs as well:
There are lots of chicken s**t tax subsidies. The mortgage interest deduction is basically a housing voucher for rich people. Those who really need help get bupkes. The tax-free health insurance you get at work is heavily subsidized by the tax code, but those with low incomes rarely get health coverage and, if they do, the subsidy is worth little or nothing.
Theoretically, I could agree with that. There are good reasons take a hard look at both of those subsidies. But the idea that they will touch the housing subsidy in the middle of this ongoing housing slump isn't likely. And the health care subsidy is one of the cornerstones of President Obama's health care reforms.
There are quite a few tax expenditures which were enacted to give businesses incentives to do things they wouldn't normally spend the money to do. Energy is one of those areas:
The exponential growth of these programs is particularly evident in the energy sector where more than half of all energy programs are now funded through tax expenditures. The number of energy tax expenditure line items grew from 12 to 37 between 2000 and 2007, and spending in these areas increased from $3 billion to more than $10 billion.
Obviously, getting rid of the sickeningly profitable oil companies is a good place to start. They are more than capable of funding anything directly and the government should force them to do it through regulation. But that's not the only kind of "energy subsidies" that are out there. There are a whole bunch of infrastructure upgrades that are funded through this mechanism. So if they get rid of those subsidies the likely result is that many of the companies just won't bother doing the upgrades. I suspect that many of the "incentive" programs that have been put on the books in lieu of regulations over the past few decades will end up on the scrap heap.
There are many tax expenditures that are giveaways to business. There are also many tax expenditures that are the only way liberals could get any kind of government support for average Americans and necessary public programs over the past 25 years of the GOP tax and spending jihad. It's really important to differentiate between them. I have no doubt that Tom Coburn is perfectly willing to eliminate the Earned Income Tax Credit or Making Work Pay and call it a tax hike. You could probably twist Grover Norquist's arm on that one too. But when it comes to eliminating a valuable corporate subsidy, I'd guess he won't be as likely to sign on.
It's obvious that this has become an excellent way to give lucrative goodies to wealthy contributors and lobbyists. But it's important to remember that most of this came about because the Republicans demagogued government programs to the point that it became almost impossible to enact one straight out. Combined with the Democrats DLC experiment to unleash "market forces" for liberal goals and you have a quarter century's worth of liberal initiatives caught up in this idiotic funding method. There is great danger in throwing the baby out with the bathwater.
I think it would be just terrific if they took the good programs out of the "tax expenditure" category and made them directly evaluated and appropriated. That's how government is supposed to work. However, call me cynical if you will, I just don't see that happening in the near term. The most likely scenario is that the corporations will unleash their lobbyists to ensure that they don't pay a penny more in taxes at the very least. (I'm betting they end up paying less) and that nobody has the nerve to touch the big money subsidies like the home mortgage deduction in an election year. So that leaves a few minor industry subsidies that have outlived their usefulness and maybe one or two big ticket items for show in exchange for getting rid of programs like the EITC or important subsidies for alternative energy.
In a perfect world they could work this out so that we preserve what's important and get rid of what isn't. But our political system is so dysfunctional and corrupt at the moment that it's hard to see how that happens. I would keep a very sharp eye on the details. And certainly, the Democrats should fight like hell not to lower those corporate rates until it's demonstrated that closing those "loopholes" will raise the revenues they promise. Verify, then trust.
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