Lame Ducks and Corporate Tax Privileges

Congress will once again have to consider a massive and unaccountable 2017 spending bill. We cannot overstate the risk faced by taxpayers during that time.

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Mitch
Tom Williams/CQ Roll Call/Newscom

Congress recently passed another short-term continuing resolution to avoid a government shutdown and fund the government until Dec. 9. It was a small victory for those of us who fight against cronyism, as the cronies failed to use the bill as a way to restore the full lending authority of the Export-Import Bank, whose charter expired for a short time last year. Sadly, it is opening the way for the mother of all crony legislation: an omnibus bill during the lame-duck session.

Congress will once again have to consider a massive and unaccountable 2017 spending bill during that postelection twilight period when outgoing politicians are able to push through legislation before the new president and new Congress take power.

We cannot overstate the risk faced by taxpayers during that time. The lame-duck session provides lawmakers with a unique opportunity to load the omnibus bill with pork projects, such as a full Ex-Im revival and other special interest handouts. And this year, the stakes are high for interest groups and lobbyists because some $19.4 billion in tax extenders—privileges granted to politically favored special interests—are set to expire.

They include $26 million in tax privileges for NASCAR and Hollywood movie studios, $7 billion in renewable energy subsidies, $336 million in rum subsidies, and a $433 million railroad maintenance subsidy (with all numbers representing two-year costs). As part of President Barack Obama's last hurrah, we should also expect Democrats to push for billions of dollars in taxpayers' money to bail out insurance companies crushed by the failed promises of the Affordable Care Act.

Now, to be fair, these handouts are only a small share of the cronyism that takes place in our tax code day in and day out. In a study just released by the Mercatus Center at George Mason University to review selected corporate tax privileges, my colleague Adam Michel and I examine the current state and accounting of what are commonly called tax expenditures. We find that not all tax expenditures are created equal. Some of these tax exemptions are meant to address economic inefficiencies created—mostly through the double taxation of capital income—by the income tax code. However, many of them are simple government-provided tax subsidies.

In our calculations, 65 percent of corporate tax expenditures privilege certain activities or industries while excluding others. They result in effective tax disparities that not only are unfair and encourage rent-seeking but also distort consumption and investment, which harms the economy. For instance, our tax code contains special deductions for many Blue Cross Blue Shield companies, deductions that are not extended to their competitors.

The conversation on tax expenditures is often muddied by a lack of distinction between crony tax expenditures and anti-double taxation deductions. However, it shouldn't stop us from trying to fight the exemptions that are just tax privileges to special corporate interests. As a first step in that fight, lawmakers could let those crony tax extenders expire. They could also expand narrowly applied expenditures that aim to move the tax code toward a neutral base and eliminate expenditures that fail to perform this function.

Ultimately, members of Congress could adopt a broad-based consumption tax system to replace the complicated and unfair income tax we have now. And until they do, they should abstain from adding new tax privileges to serve their corporate friends.

COPYRIGHT 2016 CREATORS.COM

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  1. What’s the use of spending all that time and energy and money getting elected to Congress if you can’t then use tax dollars to choose winners and losers.

    1. To get the numbers of college co-eds so you can send them dick-pics?

    2. As Tim Huelskamp learned, it’s not that you can use tax dollars to pick winners and losers, you must use tax dollars to pick winners and losers. Huelskamp chose poorly.

  2. Get your crony capitalist caps on boys and girls!

    Its time to pass out pork pork pork, raise the debt ceiling and generally expand the government’s power and spending.

    Even a 10% across the board cut in fed spending would be a nice surprise. Not going to happen though.

  3. “Some of these tax exemptions are meant to address economic inefficiencies created?mostly through the double taxation of capital income?by the income tax code. However, many of them are simple government-provided tax subsidies.

    In our calculations, 65 percent of corporate tax expenditures privilege certain activities or industries while excluding others. They result in effective tax disparities that not only are unfair and encourage rent-seeking but also distort consumption and investment, which harms the economy . . . .The conversation on tax expenditures is often muddied by a lack of distinction between crony tax expenditures and anti-double taxation deductions.”

    I admit I am highly susceptible to ignoring tax breaks as a problem, in part, because of double taxation. It is hard for me to get angry about any company “getting away” with not paying taxes when the normal course of action involves ripping them off through double taxation.

    Even if they aren’t being double taxed, the corporate tax rate may be too high, there’s the costs of compliance, etc., etc.

    1. When the legal norm is high taxes and companies manage to lower their taxes through political corruption, then that’s a bad thing, even if you generally favor low taxes.

  4. The other problems are about two things.

    One of them is that the less amount of productive resources the government consumes, the better it is for the economy. The proceeds of crony capitalism may not be the most efficient use of profits, but surely they get a better return for the economy than the government would if the government spent it.

    The second issue is that actual government spending seems like a problem that’s so beyond our control that giving tax breaks to rent seekers seems to me like part of the solution. Starving the beast–by whatever means are available–certainly makes more sense to me than the suggestion that the government will someday be so flush with cash that it will stop spending. If they spend every penny they get and then some, the solution is not to give them more money to spend.

    1. But that’s what the printing presses are for.

      1. Porn.

        The printing presses are for porn.

        Didn’t they teach you anything in libertarian school?

  5. I really hate the term “tax expenditure” because it lends validity to the idea that not taking is giving.

    1. Outside of refundable credits it’s really the wrong term.

      1. I would say even refundable credits aren’t expenditures unless and until the refund exceeds your tax liability.

        A refundable credit up to that amount is money that just increases your refund of taxes pre-paid. Refundable credits reduce your tax liability, up to the amount of your liability – by law, the government never had a claim to that money. Its like any other deduction in that way – if you didn’t pre-pay your taxes, the money would have never left your account and so isn’t a government expenditure (tax or otherwise) at all.

        1. I’m thinking EITC and stuff like the “making work pay” credit that often do/have make people’s refunds exceed their actual liability.

    2. It’s a pet peeve of mine. The fact that they never mention that the largest tax expenditure is the lower tier rates of of the income tax itself shows how disingenuous the term is.

      That’s not to say that social engineering thru the tax code is anything other than evil.

  6. In California, I’ve heard so many times over the years that Sacramento’s outrageous overspending wouldn’t be a problem if only it weren’t for Proposition 13.

    If it hadn’t been for Proposition 13, the drunken sailors in Sacramento would have burned through even more money. The suggestion that drunken sailors would spend less if only they had more money to spend is absurd.

    So when I hear about Sacramento giving tax breaks to people who put solar panels on their roofs (or something else), it doesn’t bother me. Those solar panels may not be the most economically efficient use of that money, but the alternative isn’t a more economically efficient use. The alternative is Sacramento squandering that money completely.

    I see crony tax breaks the same way. If the problem is that they aren’t universally applied, then they’re almost like a step in the right direction.

    1. You’re making actual drunken sailors look bad. When they spend money the bars and ladies love ’em.

      1. OK, we extend drunken sailor analogy so that they are packing heat, and take money at gunpoint when they run out? Also run up tabs because are you gonna argue with a drunk, armed sailor who’s insistent?

    2. The real problem with Prop 13 is that it is massively distorting the California real-estate markets, creating strong disincentives for people (in particular, retirees) to move out of their homes to a place that would be better for them and the people who need to be close to work.

      Furthermore, without Prop 13, income taxes might not have mushroomed to the insane levels that they have in California.

  7. Wouldn’t it be cool to have a Constitutional amendment which forbid any member of Congress from returning to office if a balanced budget was not passed in time? I mean not only could they not be re-elected, but if Senators were not standing for election, they would be fired for not having passed a balanced budget.

    The entire lot, all gone. An entirely new crop, every single one of them.

    Hell, throw out the President and Vice-President too.

    No balanced budget by July 1st? Everybody OUT. Throw every single campaign into an uproar.

    1. What makes you think the people who replace them will be any better?

      1. Because the people who replace them will want to hold office for more than a year?

        1. Anybody who “wants to hold office” probably shouldn’t.

          We should go back to the Greek system of democracy, which treated the legislative branch like we treat juries.

    2. The problem is that doesn’t work the way you think it would.

      in government circles the consider a budget balanced after any bond issues they bake into it are resolved. So yeah the budget is balanced in that the money coming in equals the money coming out but a portion of that money coming in was from taking on debt and not tax revenues.

      1. Plus, you can always balance a budget by raising taxes and calculating assumed tax revenue.

        1. Not if you require the budget to actually balance every year. That is, getting the revenue in before you spend it. I know, it’s a radical concept for government, but it’s how most of the rest of the world operates.

      2. Oh I know all too well how politicians and bureaucrats can mangle words to mean anything they want. Even if there were some semi-strict definition of “balanced” which they had to pay lip-service to, nothing would prevent them from changing the budget the next day.

        But right now they can’t even pass any budget. I just like the idea of them sweating some deadline close enough to the election to make choosing replacements a real scramble.

      3. Rasilio, those problems can be resolved by adding “passed a balanced budget” to “stuck to a balanced budget” as well. If the federal debt goes up in FY 2016, no Congressmember can stand for re-election, period.

      4. Make a rule that says the budget can’t exceed last years tax revenues.

        1. And/or cap it as %gdp with no off budgeting allowed.

    3. You are making assumptions that incentives will work with these corrupt lawyer-politicians.

      I used to think that withholding their pay until they pass a balanced budget each year would work. They would just throw together a budget to get paid.

      Combination of pay withholding and require 3/4 majority to raise taxes, debt ceiling might do it. They mostly still all work together now to fuck us.

      You need people in Washington who are part-time and want to be there to be a Legislator to make sure our small government operates as good as it can for being small and focused.

  8. Don’t worry, I’m sure Big G and the rest of the Kronies are on the case…

    http://thekronies.com/

  9. Congress recently passed another short-term continuing resolution to avoid a government shutdown and fund the government until Dec. 9.

    Xlation: It continues to swipe the credit card.

  10. “Rum subsidies”? Where’s my free rum?

    1. It’s all gone

      1. Why is the rum gone?

    2. In California, it’s illegal to give people free beer.

      http://articles.latimes.com/19…..s/fi-37034

      That should have been a dead giveaway that Sacramento had become unaccountable.

      They’re supposed to protect our rights.

      Instead, they protect us from free beer?

      1. “The decision, however, would not prevent bartenders from pouring their favorite patrons an occasional free one.

        “That’s an incidental drink that’s permissible–within certain restrictions,” Botting said.”

        “Within certain restrictions”: Government speak for “you don’t even know you’re doing something wrong until we tell you”

      2. In KY, you cant sell beer at a loss.

        Much less free.

        Funny bit:. Two beers for the price of one is legal. Buy one get one free isnt.

  11. We cannot overstate the risk faced by taxpayers during that time.

    Oh, I think it’s easy enough to overstate the risk. Just not with anything remotely plausible. You have to delve into some HP Lovecraft to find examples of overstating the threat level.

  12. And why is your poster child for Congressional pig-troughery a Senator? Isn’t Paul Ryan the one nominally in charge of the budget process and wasn’t he elected Speaker specifically on the promise of ending this can-kicking, pea-hiding, book-cooking, double-entry ledgerdemain? Why the hell isn’t he out there on the Capitol steps committing seppuku? (Well, aside from the fact that he has no shame and no honor – but couldn’t we at least get him out there and give us a chance of throwing some rocks or rotten fruit or government cheese at his head or something?)

  13. Ultimately, members of Congress could adopt a broad-based consumption tax system to replace the complicated and unfair income tax we have now. And until they do, they should abstain from adding new tax privileges to serve their corporate friends.

    A narrow base like consumption will end up with the same politics-based cronyism as a narrow base like income. Because total govt spending as a % of that single base is ALWAYS going to require a marginal tax rate that distorts behavior. And since the distribution of consumption v income v wealth – and the spending by govt for transfers v infrastructure (which should be treated like a capital expenditure) – is different among different groups; then politics/power is always going to lead to everyone trying to get theirs at the expense of everyone else.

    What do you seriously think is going to happen to the economy with a 20% or so VAT tax on (presumably) non-necessities? That will drive the globalist crowd overseas to some Caribbean island to buy their baubles while leaving them freer to buy their pols here. They will then be even more inclined than they are now to use the govt as an instrument of oppression to protect their assets here since it will cost them nothing and deliver all the benefits to them. The perfect transition to serfdom for most and freedom for the elites.

    Reason is the hopped-up organ-grinders monkey for that crowd. /rant

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