[Vision2020] The Real Spending Problem

Art Deco art.deco.studios at gmail.com
Sun Mar 17 12:13:02 PDT 2013


  [image: The New York Times] <http://www.nytimes.com/>

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March 16, 2013
The Real Spending Problem By THE EDITORIAL
BOARD<http://www.nytimes.com/interactive/opinion/editorialboard.html>

The budget fight in Washington, which entered a new round last
week<http://www.nytimes.com/2013/03/13/us/politics/ryans-plan-aims-to-balance-budget-in-10-years.html>as
Senate Democrats and House Republicans introduced dueling plans, is
usually cast as a contest between raising taxes and cutting spending. In
fact, the taxes-versus-spending distinction is largely meaningless.

Each year, the government doles out tax breaks worth $1.1 trillion. That is
more than the cost of Medicare and Medicaid combined. It is more than
Social Security. It tops the defense budget, and it tops the budget for
nondefense discretionary programs, which include most everything else.

Tax breaks work like spending. Giving a deduction for certain activities,
like homeownership or retirement savings, is the same as writing a
government check to subsidize those activities. Functionally, they mimic
entitlements. Like Medicare, Medicaid and Social Security, they are
available, year in and year out, in full, to all who qualify. Yet in budget
talks, Republicans ignore tax entitlements, which flow mostly to
high-income taxpayers, while pushing to cut Medicare, Medicaid and Social
Security.

President Obama and Congressional Democrats have rightly asserted that tax
breaks are ripe for cuts that could raise revenue without hurting most
taxpayers. One method, as presented in the Senate Democratic plan, is to
convert tax deductions, which increase in value as income rises, to tax
credits, which would provide benefits more broadly and evenly among low-,
middle- and high-income households.

Tax deductions, however, are only one kind of tax break. Many others take
the form of arrangements that allow wealthy taxpayers to either escape tax
entirely on specific transactions or to defer it indefinitely.

Democratic budget proposals have targeted some tax shelters. They all bear
scrutiny. Especially now, when solutions are needed to replace the
automatic budget cuts, many tactics are indefensible and should be ended,
including:

*CARRIED INTEREST* This loophole lets private equity partners pay tax on
most of their income at a top rate of 20 percent, versus a top rate of 39.6
percent for other high-income professionals. It drains the Treasury of
$13.4 billion a decade, and should be closed, along with a shelter recently
enacted in Puerto Rico that would help shield the income of individuals
whose taxes would rise if the carried-interest tax break was eliminated.

*NINE-FIGURE I.R.A.’S* Remember Mitt Romney’s $100 million I.R.A? Private
equity partners apparently build up vast tax-deferred accounts by claiming
that the equity interests transferred to such accounts from, say, their
firms’ buyout targets are not worth much. No one knows how much tax is
avoided this way. What is known is that I.R.A.’s are meant to help build
retirement nest eggs, not to help amass huge estates to pass on to heirs.

*‘LIKE KIND’ EXCHANGES* As reported in The
Times<http://www.nytimes.com/2013/01/07/business/economy/companies-exploit-tax-break-for-asset-exchanges-trial-evidence-shows.html?pagewanted=all>by
David Kocieniewski, this tax break was enacted some 90 years ago to
help
farmers sell land and horses without owing tax, as long as they used the
proceeds to buy new farm assets. Today, it is used by wealthy individuals
and big companies to avoid tax on the sale of art, vacation homes, rental
properties, oil wells, commercial real estate and thoroughbred horses,
among other transactions. Government estimates say this costs about $3
billion a year, but industry data suggest the amount could be far higher.

The list goes on. American multinationals, insurance companies and
so-called S corporations are tax avoidance machines. What remains of the
estate tax is beset with tax dodges. Even golf courses are
entitled<http://lawprofessors.typepad.com/nonprofit/2012/02/proposal-to-eliminate-charitable-deductions-for-golf-course-easements.html>to
a special tax break of their own: some $50 million a year is granted
to
owners who donate golf courses to conservation trusts, ostensibly to
benefit the public — though the public good in private courses is dubious.

In this time of ill-advised budget cuts, there are surely better ways to
spend that money. For $50 million, 6,000 children could attend Head Start
next year.


-- 
Art Deco (Wayne A. Fox)
art.deco.studios at gmail.com
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