December 19, 2014

December 19, 2014 | Commentary on Taxes, Tax Reform

Special interest pleading via the tax code is government at its worst

The latest disgrace out of Capitol Hill in this lame-duck session is the “tax extenders” bill. This has become an annual Washington ritual with Congress waiting until the very last minute to approve dozens of expiring tax credits, deductions and loopholes. It is a microcosm of everything wrong with the way Congress operates.

The “extenders” bill crams into one bill a mishmash of both necessary and absurd provisions of the tax code. All told, the annual price tag is roughly $50 billion. The package includes the valuable research and development tax credit and expensing for business equipment and other capital purchases. These create jobs and make American businesses more competitive. But the bill also includes giveaways to the wind energy industry, and tax benefits for teachers, commuters, “motorsports entertainment complexes,” the horse racing industry and other aggrieved special interests.

Reading the language of some of these loopholes, you scratch your head and wonder: How in the world did this get in the IRS code? The racehorse tax break, for instance, applies to “(i) any race horse — (I) which is placed in service before January 1, 2014, and (II) which is placed in service after December 31, 2013, and which is more than 2 years old at the time such horse is placed in service by such purchaser, (ii) any horse other than a race horse which is more than 12 years old at the time it is placed in service.”

Got that?

If Congress doesn’t act before the end of the year, all these tax breaks go away. For some industries, all hell breaks loose — or so they tell us.

The big winners here are the business lobbyists who cash in every year flacking for the chamber of commerce, the tech community, NASCAR and hordes of other K Street hustlers whose mission it is to ensure even the most obscure loopholes get new leases on life.

The wind tax credit is one of the more preposterous. Wind energy would not exist (except in some high-wind locations) were it not for a credit that requires taxpayers to cover the billions of dollars of losses this industry incurs every year. The tax provision goes back at least to the 1990s and was supposed to last no more than five years. But now Big Wind wants its umpteenth lease on life — and will probably get it.

In truth, there isn’t much rhyme or reason why most of these provisions should be drafted into the tax code. Americans say they want a tax code that is simple and fair without privileges. This is the opposite of that.

Liberals and conservatives can’t seem to see eye to eye on much of anything these days, but certainly everyone can agree that there must be a better way to raise the $40 trillion in taxes Uncle Sam will collect over the next decade. Special interest pleading via the tax code is government at its worst. It’s the tax revenue version of earmarking.

I’m old enough to remember in 1986 when a bill to clean out the stables of the tax code in exchange for lower tax rates won Senate approval by an astounding vote of 97-3. Liberals like Edward M. Kennedy and Howard Metzenbaum joined hands with conservatives like Orrin G. Hatch and Strom Thurmond.

Imagine for a moment that Congress enacted a simplified tax where this factory of loopholes were gone for good. Every individual, every business, every industry would pay a lower rate. This tax code would be comprehensible and pro-growth and not based on who hires the most effective lobbyist. Under this flat tax, a seat on the tax-writing committee wouldn’t wield much power anymore because there isn’t anything left to buy or sell.

But for at least another year, Democrats and Republicans have decided they would rather cash in on complexity. They don’t seem to mind that they look like bipartisan buffoons. Then they wonder why Congress‘ approval rating is stuck in the teens — slightly behind trial lawyers and used-car salesmen.

 - Stephen Moore is chief economist at The Heritage Foundation.

About the Author

Stephen Moore Distinguished Visiting Fellow
Project for Economic Growth

Originally appeared in The Washington Times