[Vision2020] Double Speak

[Art Deco]

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

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March 17, 2013
Tax Credits or Spending? Labels, but in Congress, Fighting Words By ANNIE
LOWREY<http://topics.nytimes.com/top/reference/timestopics/people/l/annie_lowrey/index.html>

WASHINGTON — In a low-income neighborhood in Bozeman, Mont., taxpayers
helped pay for the construction of a grocery store, Town and Country Foods.
They are doing the same in New Orleans, with federal dollars helping to build
new groceries <http://www.nola.gov/HOME/FreshFoodRetailersInitiative/>,
including a Whole
Foods<http://new.nola.gov/mayor/press-releases/2013/20130214-mayor-landrieu-announces-fresh-food-retai/>,
in an area still suffering after Hurricane
Katrina<http://topics.nytimes.com/top/reference/timestopics/subjects/h/hurricane_katrina/index.html?inline=nyt-classifier>.


The Bozeman project relied on tax credits, while New Orleans is using
federal grant money. To economists — and to taxpayers — that makes no real
difference. “These are at some point arbitrary distinctions between taxes
and spending,” said Donald Marron, the director of the Tax Policy Center, a
nonpartisan Washington research group.

But to Congress, it makes all the difference — and is something worth
fighting over. As lawmakers struggle to narrow the government’s deficit,
every dollar taken away from the block grant program used in New Orleans
counts as a budget cut. Every dollar taken away from the Bozeman tax credit
program — part of a vast array of so-called tax expenditures that cost the
federal government more than $1 trillion in lost revenue every year —
counts instead as a tax increase.

In budget proposals put forward last week, both
Democrats<http://budget.senate.gov/democratic/index.cfm/files/serve?File_id=c951a802-7600-4111-97c9-20bccc9c69d8>and
Republicans <http://budget.house.gov/fy2014/> called for scrubbing billions
of dollars’ worth of the popular deductions, loopholes, preferential rates
and credits that litter the tax code, mostly benefit higher-income
taxpayers and often reflect undue government interference in economic
decisions. But the two sides are sharply divided what should happen to any
revenue raised.

Senator Patty Murray of Washington State, the shepherd of the Senate
Democratic budget proposal, proposed raising nearly $1 trillion in new
revenue over the next 10 years by cutting tax expenditures and using the
money to reduce the deficit. The White House has said it supports her plan.

“We don’t often think of tax expenditures as a form of spending,” Senator
Murray said at a hearing this month. But, she said, “they require us to
make the same kinds of trade-offs that other forms of government spending
would, and lots of them.”

In contrast, Representative Paul D. Ryan of Wisconsin, in the House
Republican budget, insisted that any money generated from curbing tax
expenditures must be offset with lower tax rates, so that overall revenue
remained the same. Republicans on the Senate Budget Committee echoed that
argument. “Eliminating tax exemptions is a tax increase,” said Senator Jeff
Sessions of Alabama. “You can’t spin it any other way.”

At the root of the bitter semantic back-and-forth is a simple truth: every
tax expenditure — and there are scores of them, used to encourage employers
to provide their workers with health care, to make houses more
energy-efficient, to aid timber cutters and much more — benefits a certain
group of taxpayers or a specific industry. And nobody wants to give up
anything.

For instance, as part of the January deal to avoid the so-called fiscal
cliff, stock car racetrack owners managed to
secure<http://www.nytimes.com/2013/01/05/us/politics/owners-of-auto-racetracks-retain-a-tax-break.html>an
extension of a tax break that lets them write off investments in their
properties more quickly. That break — as lobbied for by Nascar fans — will
cost the government about $80 million over the next 10 years.

In the corporate code, expenditures are “just a hidden, ersatz,
Soviet-style five-year plan,” said Edward Kleinbard, a longtime
Congressional tax expert now at the University of Southern California. “We
would never contemplate a world in which the government said, ‘We’re going
to write out checks to Nascar because it’s an important resource and we’re
going to pay for it!’ People would say, ‘They’re out of their mind!’ ”

Tax expenditures also make it harder to gauge the impact of the federal
budget<http://topics.nytimes.com/top/reference/timestopics/subjects/f/federal_budget_us/index.html?inline=nyt-classifier>on
such crucial activities as housing and retirement security. For
instance, the home mortgage interest deduction costs the Treasury about
$100 billion a year in lost revenue, and effectively encourages the mostly
affluent families who itemize deductions to buy a more expensive home. In
contrast, the annual budget of the Housing and Urban Development
Department, which generally goes to aiding the poor, is less than $50
billion.

“If someone said, ‘Let’s have a voucher program on the spending side,
giving high-income families vouchers to subsidize their mortgages,’ ” said
Glenn Hubbard, the dean of Columbia Business School and a prominent
Republican economist, referring to the home mortgage interest deduction, “I
don’t think that would get through Congress.”

Spending through the tax code has also proved harder to scale back than
spending through the regular appropriations process. Already, Congress has
cut more than $2 trillion from health spending and the domestic and
military budgets. It has hardly touched tax expenditures. For that reason,
lobbyists on Capitol Hill working for specific industries often push for
tax provisions, like credits, rather than straightforward federal pork.

“Spending embedded in the tax code is effectively funded before
discretionary spending is considered,” said the Government Accountability
Office in one of several reports
<http://www.gao.gov/new.items/d11318sp.pdf>warning of the consequences
of tax expenditures. “Congress lacks the
opportunity to regularly review their effectiveness.”

As a result of their pervasiveness, many individuals, businesses and
communities have come to rely on tax expenditures, in some cases even more
than on traditional spending programs. The new-markets tax credit used in
Bozeman has helped pay for hospital wings, grocery stores, food
banks<http://topics.nytimes.com/top/reference/timestopics/subjects/f/food_banks/index.html?inline=nyt-classifier>and
other projects.

“This is such a catalytic program,” said Heidi DeArment, the vice president
of the Montana Community Development Corporation, which assists tax credit
projects in the state. “Every program goes through the but-for test: But
for this financing, this project wouldn’t exist.”

Ending or curtailing more widely used tax breaks would not just be
unpopular but could also destabilize certain parts of the economy. To
suddenly cut the home mortgage interest deduction, for example, might
damage the still-weak housing market.

But cutting many tax expenditures would do the economy as a whole a lot of
good, economists argue, even lifting growth rates over the longer term. And
in the struggle to wrench down long-term deficits, both Republicans and
Democrats say they want to cut them.

The White House and Democrats, for example, often take aim at tax breaks
that aid the oil and gas industry, or hedge fund managers. In general,
however, both sides have avoided getting specific. The two budget proposals
put out last week suggested hundreds of billions of dollars in cuts,
without committing to any particular ones.

That is in part because threatening to take away a tax break often means
starting a fight with a powerful interest group. When House Republicans and
the White House contemplated curbing the deduction for charitable giving as
part of the tax standoff this winter, nonprofits lobbied
furiously<http://www.nytimes.com/2012/12/06/business/charities-press-congress-to-save-tax-deductions.html>on
Capitol Hill and through the media.

Experts say the most realistic prospects are for Congress instead to put an
overall cap on deductions, starting with higher-income families, or to
convert deductions into tax credits. “You can make a powerful case that
itemized deductions should simply be disallowed completely,” said Mr.
Kleinbard of the University of Southern California. “But that’s too heavy a
lift, and they’ll start smaller.”


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