(Note: Earlier this week I promised to publish some thoughts about anti-tax pledges. You can see them at the end of this column from Thursday’s print edition of the AJC, which also draws on an earlier blog post.)
We’ve become accustomed to hearing tea partyers say they want their country back. One step on that road is to take back tax cuts.
I’m not talking about particular tax cuts that expired, but rather the concept. Conservatives have allowed the mantra of lower taxes to be hijacked — and used to undermine our real goal of limiting government. And we’ve done it by watching tax loopholes — tax breaks, credits and exemptions — become another way for government to favor certain people, companies and activities over others.
It has happened in Georgia. And it has happened at the federal level since the 1986 reform that eliminated many loopholes in exchange for lower rates. In too many cases, tax breaks have become another way for government to make citizens dependent.
Such talk makes some of my fellow conservatives nervous. They scoff at saying some tax breaks amount to government spending. I agree there’s a danger in, for instance, saying government “gives” people’s income back to them through tax breaks. The government doesn’t “give” your income back to you. It was yours to start with.
That said, when the government takes less of your money because you acted the way government wanted you to act, it is decreasing, not increasing, your liberty.
For liberty’s sake, government should apply a lower tax rate to all of a person’s income, regardless of how it’s earned or spent. And when it comes to encouraging economic growth, we’re best served by a tax code that is stable over the long run — rather than adopting a series of short-term cuts for this tax or that one — and doesn’t try to predict which industries will lead the recovery.
Some of those very same conservatives object that government promotes its social or economic goals through direct spending. They rightly call such appropriations “subsidies.” Well, a housing subsidy is still a housing subsidy if it comes in the form of a mortgage-interest deduction.
Put another way: The $535 million loan guarantee for solar panel maker Solyndra, and the company’s subsequent bankruptcy, are being scrutinized as a misuse of federal funds. Appropriately so. But how many Solyndras have taxpayers unwittingly funded through tax breaks, with equally poor results?
The Washington Post this month produced a report on tax breaks that sheds some light on how they work. It makes two points very clear.
First, if you think these tax breaks are mostly about “special interests” or “the rich,” think again. The vast majority of tax breaks, both in the number of loopholes and their value, apply to the middle class, not wealthy people or corporations. (Not that corporate welfare is OK.)
Second, this is a bipartisan problem. Shortly after the 1986 federal tax overhaul, the Post reports, “lawmakers — particularly Democrats — latched onto the tax code as a vehicle for new initiatives. …
“[I]t started in 1986 with the low-income housing credit for developers and investors. As Reagan’s budget cutters were slashing direct spending on housing, Rep. Charles B. Rangel (D-N.Y.) won bipartisan support for the credit, which quickly became a primary source of financing for housing construction and rehabilitation.”
Under President Clinton, congressional Republicans were “far more willing to finance his priorities in the form of tax cuts than as new spending.”
The problem has been perpetuated, if not exacerbated, by the anti-tax pledges many Republican candidates and elected officials take. In theory, the “Taxpayer Protection Pledge” from Grover Norquist’s Americans for Tax Reform — the most famous of these pledges — allows for closing loopholes. But only if rates are lowered.
Again, this is a sound idea in general that is being abused in specific cases.
To wit: Why should a conservative pledge, designed to promote limited government, enforce tax breaks that pick winners and losers in the energy industry? But there was Norquist this summer, arguing that repealing a wasteful ethanol tax credit amounted to a pledge-busting tax hike.
If we want the country to get back on track, we have to get back to getting it right on our own principles.
– By Kyle Wingfield