Topic: Tax and Budget Policy

The Baucus-Hatch “Blank Slate” Approach to Tax Reform Isn’t Blank

By
Daniel J. Mitchell

I’m a big proponent of tax reform, so at first I was very excited to learn that Senators Max Baucus (D-MT) and Orrin Hatch (R-UT) were launching an effort to clean up the tax code.

But on closer inspection, I don’t think this will lead to a simple and fair system like the flat tax. Or even a national sales tax (assuming we could trust politicians not to pull a bait-and-switch, adding a new tax and never getting rid of the income tax).

But judge for yourself. Here’s some of what’s contained in a letter they sent to their colleagues, starting with some language about the growing complexity of the tax code and the compliance cost for taxpayers.

…since then, the economy has changed dramatically and Congress has made more than 15,000 changes to the tax code. The result is a tax base riddled with exclusions, deductions and credits. In addition, each year, it costs individuals and businesses more than $160 billion to comply with the tax code. The complexity, inefficiency and unfairness of the tax code are acting as a brake on our economy. We cannot afford to be complacent.

Sounds good, though they also could have mentioned other indicators of nightmarish complexity, such as the number of pages in the tax code, the number of special tax provisions, or the number of pages in the 1040 instruction manual.

I’m a bit mystified, however, at the low-ball estimate of $160 billion of compliance costs. As explained in this video, there are far higher estimates that are based on very sound methodology.

But perhaps I’m nit-picking. Let’s see with Senators Baucus and Hatch want to do.

In order to make sure that we end up with a simpler, more efficient and fairer tax code, we believe it is important to start with a “blank slate”—that is, a tax code without all of the special provisions in the form of exclusions, deductions and credits and other preferences that some refer to as “tax expenditures.”

I don’t like the term “tax expenditure” since it implies that the government taking money from person A and giving it to person B is equivalent to the government simply letting person B keep their own money. These two approaches may be economically equivalent in certain cases, but they’re not morally equivalent.

Once again, however, I may be guilty of nit-picking.

That being said, there is a feature of the “blank slate” approach which does generate legitimate angst. There’s a footnote in the letter that states that the Joint Committee on Taxation is in charge of determining so-called tax expenditures.

A complete list of these special tax provisions as defined by the non-partisan Joint Committee on Taxation.

This is very troubling. The JCT may be non-partisan, but it’s definitely not non-ideological. These are the bureaucrats, for instance, who assume that the revenue-maximizing tax rate is 100 percent! Moreover, the JCT uses the “Haig-Simons” tax system as a benchmark, which means they start with the assumption that there should be pervasive double taxation of income that is saved and invested.

This is not nit-picking. The definition of “tax expenditure” is a critical policy decision, not something to be ceded to the other side before the debate even begins.

As illustrated by this chart, the tax code is very biased against saving and investment.

Between the capital gains tax, the corporate income tax, the double tax on dividends, and the death tax, it’s possible for a single dollar of income to be taxed as many as four different times.

This is a very foolish policy, particularly since every school of thought in the economics profession agrees that capital formation is a key to long-run growth. Even the Marxists and socialists!

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Topics: 
Government and Politics, Tax and Budget Policy

Don’t be Fooled: Uncle Sam Is Still Bankrupt

By
Doug Bandow

The big spenders in Washington are all excited: the deficit is down. That must mean the budget crisis is over and Uncle Sam can go back to wasting money, big time.

Not that he ever stopped doing so. But now interest groups and leftish pundits are calling for more stimulus outlays, increased Medicaid, and expanded Social Security. They are defending huge increases in food stamp outlays. And ‘re theybewailing the terrible impact of “austerity,” defined as $5 trillion in deficits over the last four years.

The latest excitement has been caused by the recent Congressional Budget Office study detailing new budget projections. The federal budget deficit this year will be “only” $642 billion. 

That’s one-sixth of total federal outlays and 50 percent higher than that pre-Obama record deficit in 2008. But no matter; it’s not as big as before.

As I wrote in my new piece on American Spectator online:

In fact, the CBO’s latest report, “Updated Budget Projections:  Fiscal Years 2013 to 2023,” actually demonstrates that we face a continuing, enduring, and potentially catastrophic budget crisis. The near term is slightly less disastrous than originally thought. But without a genuine change of direction, the federal Leviathan remains headed over an economic cliff.

…However, this reduction does not reflect spending restraint. Rather, tax collections are up and the housing revival has at least temporarily stopped the fiscal bleeding of Washington’s boondoggle housing agencies. Explained the agency: the deficit estimate dropped significantly from February “mostly as a result of higher-than-expected revenues and an increase in payments to the Treasury by Fannie Mae and Freddie Mac.” 

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Topics: 
Government and Politics, Tax and Budget Policy

WSJ Sets a Litmus Test for Corporate Welfare

By
Sallie James

The Wall Street Journal has a largely terrific editorial today on the wasteful, inefficient, distortionary and unconstitutional Ex-Im Bank. I say “largely” because the editorial is rather meek in its recommendations, calling for “more oversight” and “limits” on the bank’s operations, rather than outright disbandment. But it’s a start, and might lend some momentum to legislative efforts to terminate the bank entirely.

The Ex-Im Bank itself is authorized until September 2014, but in the meantime a serious spanner could be thrown in the works if, as the editorial suggests, the Ex-Im board is denied a quorum. While these sorts of micro-level shenanigans are, in my opinion, an inferior substitute for principled, thoughtful policymaking, it might at least go some way toward preventing the growth of the bank, especially while Congress is so timid.

Watch this space.

Topics: 
Tax and Budget Policy, Trade and Immigration

Congress Spends Your Tax Dollars on a National ID

By
Jim Harper

It’s appropriations season! – that wonderful time of year when the House and Senate pass competing versions of legislation to fund government agencies, bureaus, and…whatever pork and pet projects they can squeeze in.

Congress has made most of its spending decisions over the past few years through last-minute continuing resolutions or consolidated appropriations bills. That makes it harder to follow the money (which may be part of the reason they’ve been doing it that way), but it’s important to watch the dollars because some of that money is going toward national ID systems and biometrics.

Last week the House passed their FY 2014 Department of Homeland Security appropriations bill. As in years past, the legislation contains funding for three of everyone’s favorite identification programs: REAL ID, E-Verify, and US-VISIT/the Office of Biometric Identity Management (OBIM), a DHS office covering biometrics for travelers at airports, ports, and other points of entry.

For the coming fiscal year, the House appropriated $114 million for E-Verify, $232 million for OBIM, and $1.2 billion for the State Homeland Security Grant Program (SHSGP), from which grants for REAL ID implementation get doled out to states.

These numbers are consistent with past levels of appropriations for these programs, with the exception of REAL ID, which had its own funding stream until it was folded into SHSGP in fiscal 2012.

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Topics: 
Government and Politics, Law and Civil Liberties, Tax and Budget Policy, Telecom, Internet & Information Policy

Time to End the Farmers’ Dole

By
Doug Bandow

Last week Washington enjoyed a miracle. Legislators failed in a high profile attempt to mulct the public.

Legislators were debating the Farm Bill, which mixes Food Stamps and agricultural price supports. Even though Washington is drowning in red ink, Republicans and Democrats wanted to approve a measure to spend nearly a trillion dollars over the next decade. 

The Democrats and Republicans disagreed only over details. The Democratic Senate approved $955 billion. The House Republican leadership wanted $940 billion. The president took no position other than to support more spending. 

However, last Thursday the House leadership miscalculated and lost support from Democrats as well as conservative Republicans, leading to the bill’s surprise defeat.

Of course, Washington was filled with recriminations. But the collapse of the legislation is very good news. As I pointed out in my latest Forbes column, the politicians’ failure creates a rare opportunity for real change. 

Indeed, both parts of the Farm Bill require transformation.

As I wrote:

The first step would be to separate Food Stamps from price supports. Debate the former in the context of the scores of overlapping and expensive welfare programs. Indeed, the Carleson Center for Public Policy recently counted an astounding 157 means-tested federal programs. Total government spending on general welfare runs about $1 trillion a year. It’s time Congress rethought and revamped the entire welfare industry.

As for the farmers’ dole, abolition is the only sensible policy. New Zealand successfully took this approach in 1984. 

Farmers are practiced businessmen who employ sophisticated scientific techniques to produce food and sophisticated financial tools to manage risk. Farmers are enjoying boom economic times. Wealthier on average than other Americans, farmer don’t need their own special welfare program.  Indeed, many operators already make a profit with little or no federal support. 

It is rare to stop the two major parties when they combine for a raid on the taxpayers. The task now is to make their defeat permanent. In recent years Americans have deregulated communications, finance, and transportation. Agriculture should be next.

Read the rest here.

Topics: 
General, Government and Politics, Tax and Budget Policy

The GOP, the Farm Bill, and Cognitive Dissonance

By
Chris Edwards

It’s a good thing that the farm bill failed to pass the House, but it is disturbing that about three-quarters of Republicans voted in favor of this massive spending bill. The House bill would have spent 47 percent more over 10 years than the 2008 farm bill ($940 billion vs. $640 billion). Most of the spending is for food stamps, so GOP farm bill supporters would have essentially ratified the recent huge spending increases on this welfare program.

I watched some of the farm bill action on the House floor, and it was sad to see so many supposed fiscal conservatives speaking in favor of it. Looking on the official websites of these farm subsidy supporters, they all claim to be deeply worried about overspending and deficits. The cognitive dissonance must be jarring to them.

Here are position statements of members I noticed on C-SPAN, who were speaking in support of the nearly $1 trillion farm bill:

Rep. Mike Conaway: “Our nation is in a budgetary crisis. Last year, the federal government borrowed about 40 percent of all the money it spent. And today, our national debt stands at more than $16 trillion, with more than $5 trillion added in the past four years. As a CPA and fiscal conservative, I am committed to working with my colleagues to cut spending and put our fiscal house in order. Congress does not have a blank check; it is vitally important that we balance the federal budget.”

Rep. Austin Scott: “Washington continues to spend at unsustainable levels … We owe it to our children and grandchildren to make the tough choices and devise a long-term solution that gets our economy back on track and reduces our deficits.”

Rep. Rodney Davis: “Today, our debt is growing faster than our economy and Washington’s promises are growing faster than its ability to pay for them. Regardless of political party, this is completely irresponsible. Our nation is facing the greatest debt in its history–a debt that we will pass along to our children and grandchildren if not addressed. This is a crisis that we cannot ignore any longer. It is a crisis that will require us to look at all areas of our government, defense and non-defense, to get our spending under control.”

Rep. Steve King: “We must also balance the federal budget … and I plan on fighting every day here in Congress to reduce federal spending and get our nation’s fiscal house in order.”

Rep. Rick Crawford: “Out-of-control government spending is a byproduct of a broken Washington. For far too long, Republicans and Democrats alike have operated under the false assumption that they can spend their way into prosperity… I was elected to office to end Congress’s reckless spending spree and chart our country on a better path. Let me be clear: Congress has a spending problem, not a taxing problem. We cannot continue to finance these bad spending habits by borrowing from foreign countries like China, and sticking our children and grandchildren with the bill. We cannot continue to swipe the nation’s credit card and live beyond our means… As long as I am a Member of Congress, I will remain committed to reining in government spending, balancing the budget, and returning to our nation’s founding principles of limited government.”

These are all admirable sentiments, but these congressmen are ignoring their own promises and proclaimed principles in their support of massive farm and food subsidies. They all voted for a subsidy bill that was 47 percent larger than the one that even profligate President George W. Bush vetoed because it “would needlessly expand the size and scope of government.” 

More on the farm bill:

Topics: 
Tax and Budget Policy

Farm Bill Fails for First Time in 40 Years (or Ever?)

By
Sallie James

It what some characterize as a triumph (and others as a sad indictment on the state of U.S. parliamentary politics), the U.S. House of Representatives failed to pass the farm bill yesterday (roll call here, 62 Republicans and 172 Democrats voting “no”). According to Charles Abbott of Reuters, it was the first time in 40 years (or possibly in history) that the House has failed to pass a farm bill.

It seems that many GOPers voted against it because the food stamp cuts were not big enough, and most Dems who voted no did so because the food stamp cuts were too big. Good luck trying to square that circle.

The Hill and Politico have more on the political fallout, none of which I particularly care about. Whoever is to “blame” (personally, I’d like to bestow Presidential Medals of Freedom on the culprits), it is clear that the old urban-rural alliance, and the idea that you can build coalitions by loading a bill with “something for everyone,” is fraying.

For too long, American taxpayers and consumers have been burdened by the scourge of special interest politics that sees farm bills passed more-or-less intact time after time. And the reason, quite frankly, is that things could be even worse if the farm bills fail to pass. One of the ag lobby’s best friends in Congress, Rep. Collin Petersen (D-MN), exposed the extortion threat behind this quinquennial circus in part of his remarks Wednesday:

Mr. PETERSON….When I was chairman and did the last farm bill, we maintained the permanent law, and we did it for a reason, which is that it is very hard to get these farm bills done, and sometimes you need some motivation to get people to move. That’s the main reason we left it there. [From the Congressional Record, pH3860. HT: Scott Lincicome, emphasis added]

That’s the key to ending the role of the federal government in agriculture once and for all: getting that “permanent” 1949 law off the books. It would be a hard legislative slog, for sure. A narrower (but still worthy) amendment by Rep. Paul Broun (R-GA), striking only the dairy price support part of the 1949 Act, failed 309-112. (On the other hand, an amendment stripping out the supply management aspect of the proposed new dairy policy passed 291-135.) But so long as this law is part of the national legislative fabric, we’ll have a dairy cliff (or some other commodity-themed cliff) every five years.

Where to go from here? Maybe the House will pass another extention of the current farm bill (itself an extension of the 2008 farm bill, which was supposed to expire in 2012), trying to buy time. Or maybe they will try to cut food stamps even more in an attempt to pass the bill with Republican support more or less alone (though that would presumably be vetoed by President Obama). Or, possibly, the House will not pass a bill at all and go straight to conference with the Senate. (The Washington Post’s Brad Plumer goes into more detail on that possibility.) I don’t know. What I do know is that Congress will more or less be tinkering at the edges unless and until that permanent law is repealed once and for all.

Topics: 
Tax and Budget Policy, Trade and Immigration

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