Washington Matters


A Tax Debate That's Long Overdue

Mark Willen

Congress may be cutting down the wrong tree in the way it's approaching the deficit.



The Senate is once again tied up in knots, torn between those who say more spending is needed to avoid a double-dip recession and those who say a stimulus won’t work and it’s time to stop spending money we don’t have. Both sides may be missing the point -- or at least an opportunity.

At issue is a bill before Congress that would extend a series of expiring tax credits for businesses and individuals, provide Medicaid money to the states and extend unemployment benefits to Nov. 30 for those still out of work.

So far the big battle has been over spending and a few revenue raisers. On one side are Republicans and conservative Democrats who say enough already to deficit spending. They point to polls showing growing concern over the national debt and say that concern is more than justified. They argue that last year’s $862 billion stimulus didn’t work, and it’s time to reverse course. They won’t back any spending that isn’t offset with cuts elsewhere in the budget.

On the other side are President Obama and a majority of Democrats who say the spending is crucial. They point to thousands on the verge of losing unemployment benefits and to states that would be forced to make really deep cuts in their budget, paring back health care or firing teachers and cops or both. They argue that the crisis facing states is a huge drag on the national economy, one that could force the country back into recession. Plenty of economists agree with that view, as Ezra Klein explained in Sunday’s Washington Post.

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To keep spending down, Senate Democrats have scaled back the House-passed version of the bill, slicing spending (including the size of unemployment checks) and proposing to offset all but about $10 billion of the bill. To do that, they would make cuts elsewhere or raise taxes, including one on what’s known as carried interest and one on overseas income earned by U.S. firms.

The tax hikes have sparked furious lobbying campaigns, but oddly, there’s been precious little debate over extending more than 60 other tax breaks -- some of rather questionable value -- at a cost of more than $32 billion over 10 years. One of the most egregious is a break for NASCAR racetracks ($40 million over three years). This is billed by Republicans as a move that will create more jobs, but in reality it is a tax expenditure -- i.e., government spending by any other name -- that is more likely to produce a windfall for track owners.

The extender list also includes such sacred cows as the research and development tax credit, at a cost of $6.6 billion over 10 years. Critics have long contended this amounts to paying companies for investments they were already planning to make, but it keeps getting renewed every year anyway.

Robert Bixby, executive director of the Concord Coalition, thinks Congress is missing the boat. He argues persuasively that it’s time to just kill the extenders. That won’t happen, and maybe there are good reasons not to go that far, but it ought to at least get some serious consideration.

Americans are clearly worried about excessive government debt, and with good reason. We can argue about whether deficit cutting must begin today -- or whether growing the economy is an equally important tool to future deficit reduction and therefore some extra spending should continue. But what we can’t argue about -- at least not if we’re serious about reducing the deficit -- is that tax hikes have to be part of the mix. There’s simply no way to reach the goal without some increases in revenue. Politicians will eventually have to stand up and say that to voters, and voters need to be adult enough to understand. Unfortunately, that day appears to be a long way off.



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