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InsiderOnline Blog: October 2008

Are Targeted Tax Breaks Like Pork?

The “sweeteners” that supposedly were needed to get the bailout bill passed last week have renewed a debate that comes up from time to time among small-government conservatives: Are tax breaks for specific interests merely the cousins of pork-barrel spending—i.e., part and parcel of Congress’s culture of corruption? Or should they be regarded as incremental steps toward the worthy goal of lowering tax burdens?

Among the provisions prompting this question was the dropping of a 39-cent excise tax on children’s wooden practice arrows.

On Friday, Gerald Prante of the Tax Foundation took the position that there is little difference between delivering a targeted benefit through the tax code and delivering it via a spending program:

Suppose Congress was about to pass an earmark that sent a government check to some person or company for $1 million as a reward for doing something that had no public good value (beyond private gains). But then at the last second, the earmark was withdrawn and replaced with a $1 million tax credit for the same person or business. Should angry opponents of the corrupt spending earmark be appeased? No. They were right that wasteful government spending forces higher taxes onto taxpayers, but so do wasteful government tax credits. The only real difference is that the IRS is implicitly writing the check instead of the Department of XYZ. From the perspective of the most taxpayers, and of economic efficiency in general, it doesn't matter which way that million dollars is delivered.

Yesterday, Ryan Ellis of Americans for Tax Reform responded, arguing that while targeted tax cuts are not the ideal reform, they nevertheless should not be confused with new spending programs:

If … I were to put in place Prante’s [hypothetical] three-legged spayed dogs credit, how does that “cost the taxpayers money?” It costs the Treasury some tax revenue, but it doesn’t have to come at the expense of any other taxpayer. It’s only if you assume that the government has the right to a certain percent of GDP in taxes that it becomes a zero-sum game … As conservatives, we can distinguish between good tax policy and bad tax policy. I would much prefer cutting the capital gains rate to doubling the child tax credit. However, I would not oppose doubling the child tax credit merely because I can’t cut the capital gains tax rate instead. As conservatives, we’re for lower taxes[.]

This topic is an important one for conservatives to think through carefully. Ellis’s logic seems correct, as far as it goes: Supporting a tax cut that benefits a narrow interest does not bar one from also supporting broader tax cuts or from supporting fundamental tax reform. But we can’t help wondering: Congress has been writing targeted tax provisions for decades now. So when exactly is it planning to come back and vote for lower and simpler taxes for everyone? Please send us that memo. Meanwhile, conservatives discuss!

Posted on 10/08/08 02:09 PM by Alex Adrianson

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