I briefly mentioned the infuriating, market-distorting, rent-seeking tax credits in my previous post on the fiscal cliff deal. I’m glad to see that the issue is getting more attention.
The tireless Tim Carney reveals that the lobbying for these tax credits did not occur in the busy final hours at the turn of the year, but in lobbying for a bill last summer that was copied verbatim into the fiscal cliff bill. Carney claims the Obama administration specifically insisted that these tax credits be shoved into the deal.
A similar roast by the Wall Street Journal details the absurdities of the corporate-welfare handouts, from “an accelerated tax write-off for owners of Nascar tracks” to “a $222 million rum tax rebate” to “the provision that allows film and television producers to expense…$20 million if the costs are incurred in economically depressed areas in the United States.” (My favorite is still the one about electric tricycles.)
Remember when liberals were so upset about GE not paying any taxes? Turns out they use one of these tax credits to do that, so it’s especially ironic that Obama and the Democrats seem to have been the most forceful advocates for extending these doozies (the only “No” votes for the summer’s lobbying list came from Republicans).
Ross Douthat and countless others in the last week have highlighted that Clinton-era tax rates for the wealthy don’t come close to paying for the entitlement programs the Democrats are so loathe to cut. What’s more astonishing, though, is that it doesn’t even begin to pay for it.
The deal’s new rates are supposed to bring in $620 billion over ten years. That’s $62 billion a year, and probably slightly less in 2013 if we assume some slight increase over the time period. Carney estimates that the deal’s corporate tax credits will cost the government $67 billion in 2013 alone.
(The next two years of credit extensions costs less than the $620 billion from ten years of rates, but if you think the lobbyists will let all of those tax credits expire in 2014 when they didn’t let any of them expire last week, I’ve got an unprofitable TV network to sell you. For the only year that counts right now, the tax rates and corporate credits comes out to a net loss.)
So we’re not even taxing the rich to pay for a small percentage of our social programs for the poor! We’re taxing the rich to pay for tax credit giveaways to a few rich corporations with the most convenient lobbying connections! That’s a pretty elite version of what I like to call Backwards Government.
I don’t mean to imply that Republicans have no share of blame here. In fact, the GOP has often set the pace for corporate handouts by arguing that various targeted tax breaks help businesses create jobs and grow the economy. But there’s a big difference between being pro-business and pro-market, and there are encouraging signs that many conservatives are learning to recognize that.
Meanwhile, Obama pushes for corporate loopholes and then turns around and claims that he wants to reform the tax code “so that the wealthiest corporations and individuals can’t take advantage of loopholes and deductions that aren’t available to most Americans.”
How can he say that with a straight face? As the WSJ editorial concludes, “One of Mr. Obama’s political gifts is that he can sound so plausible describing the opposite of his real intentions.” We can only hope that some voices in the new 113th Congress – Ted Cruz, perhaps? – can figure out how to sound just as plausible describing the reality.
I agree with most of your post, but your fifth paragraph is way off. Most of entitlement spending is funded through payroll taxes, and much of that is already paid for. For example, we’ve run a surplus for years with Social Security. Unfortunately, this has helped hide our real debt, in that it all gets lumped together, even though the intent is to put aside something extra for when the baby boomers really start collecting their money.
Clinton era tax rates applied across the board could come close to paying off our debt. Remember, we ran surpluses under Clinton. Obviously we can’t roll back the wars that we never paid for, but the economy will eventually recover (assuming we don’t prematurely apply the austerity policies that have failed here and elsewhere). But if we applied Clinton era tax rates for all tax payers, then we would eventually balance things out (or come close to it). Of course, if we applied Eisenhower era tax rates, then we would balance the budget much more quickly. Of course, we wouldn’t want to do that, since things were so terrible under Ike.
I agree with all your other points. Unfortunately, we won’t see tax reform without a tax cut. The Republicans won’t agree with it. Can you imagine getting rid of the mortgage deduction (or even replacing it with a one time first time home buyer tax credit) without lowering tax rates? Political suicide. Balancing a lower tax rate along with a simplified tax system is way more politically feasible. The next step after that would be to gradually raise tax rates, in response to a stronger economy (and only when the economy strengthens) to head off inflation. These two steps seem pretty simple in the abstract, but Washington is so dysfunctional that it can’t even do the easy stuff. No wonder they can’t deal with the hard stuff (like climate change).
Thanks for your thoughts. Perhaps I should have said “Clinton-era tax rates for the wealthy don’t come close to paying for the shortfall in the entitlement programs”. Payroll taxes do fund these things, but the problem is that they don’t fund them enough. Medicare recipients pay in about $114K and receive $355K in benefits on average. Social Security technically has a surplus, but since the government just used it to buy Treasuries and spend the money on other things, once the surplus goes away the only way to fill the gap is by selling more Treasury bonds and increasing the deficit.
Neither of these gaps can be filled with Clinton-era tax rates on the wealthy, but especially when Clinton-era tax rates on the wealthy are completely offset by Bush/Obama-era tax breaks for the well-connected. I agree that Clinton-era tax rates across the board would help, and that’s why I’ve said I think I would have preferred that if we’re not going to cut spending at all, but even that would have only cut the deficit in half according to the CBO. Clinton-era taxes combined with Clinton-era spending would help even more, but even that might not solve our deficit due to the Social Security surplus that has essentially disappeared since then.
I agree with most of your post, but your fifth paragraph is way off. Most of entitlement spending is funded through payroll taxes, and much of that is already paid for. For example, we’ve run a surplus for years with Social Security. Unfortunately, this has helped hide our real debt, in that it all gets lumped together, even though the intent is to put aside something extra for when the baby boomers really start collecting their money.
Clinton era tax rates applied across the board could come close to paying off our debt. Remember, we ran surpluses under Clinton. Obviously we can’t roll back the wars that we never paid for, but the economy will eventually recover (assuming we don’t prematurely apply the austerity policies that have failed here and elsewhere). But if we applied Clinton era tax rates for all tax payers, then we would eventually balance things out (or come close to it). Of course, if we applied Eisenhower era tax rates, then we would balance the budget much more quickly. Of course, we wouldn’t want to do that, since things were so terrible under Ike.
I agree with all your other points. Unfortunately, we won’t see tax reform without a tax cut. The Republicans won’t agree with it. Can you imagine getting rid of the mortgage deduction (or even replacing it with a one time first time home buyer tax credit) without lowering tax rates? Political suicide. Balancing a lower tax rate along with a simplified tax system is way more politically feasible. The next step after that would be to gradually raise tax rates, in response to a stronger economy (and only when the economy strengthens) to head off inflation. These two steps seem pretty simple in the abstract, but Washington is so dysfunctional that it can’t even do the easy stuff. No wonder they can’t deal with the hard stuff (like climate change).
Thanks for your thoughts. Perhaps I should have said “Clinton-era tax rates for the wealthy don’t come close to paying for the shortfall in the entitlement programs”. Payroll taxes do fund these things, but the problem is that they don’t fund them enough. Medicare recipients pay in about $114K and receive $355K in benefits on average. Social Security technically has a surplus, but since the government just used it to buy Treasuries and spend the money on other things, once the surplus goes away the only way to fill the gap is by selling more Treasury bonds and increasing the deficit.
Neither of these gaps can be filled with Clinton-era tax rates on the wealthy, but especially when Clinton-era tax rates on the wealthy are completely offset by Bush/Obama-era tax breaks for the well-connected. I agree that Clinton-era tax rates across the board would help, and that’s why I’ve said I think I would have preferred that if we’re not going to cut spending at all, but even that would have only cut the deficit in half according to the CBO. Clinton-era taxes combined with Clinton-era spending would help even more, but even that might not solve our deficit due to the Social Security surplus that has essentially disappeared since then.