I was pretty tough on House Minority Leader John Boehner the other day, and I don’t regret a word, but the Ohio Republican made one important suggestion that’s worth highlighting. It’s about the obscure-sounding but increasingly costly subject of tax expenditures.
These are just what they sound like—spending programs disguised as tax breaks. In recent decades, the number and price tag of tax expenditures has exploded: The annual cost is approaching $1.2 trillion, according to the Center for American Progress. To put this in some perspective, that is half of what the government brings in through the tax code and twice the entire budget for non-security discretionary spending.
This expansion has occurred in part because Boehner’s colleagues have been happy to embrace new tax expenditures—these are tax cuts, after all, and therefore by Republican definition always good—that they would denounce if accomplished through direct spending.
Yet tax expenditures, once embedded in the code, are harder to remove because they don’t have to go through the annual appropriations process. This is government spending on autopilot. And because most are structured as deductions rather than credits, tax expenditures are worth more to wealthier people, who pay higher marginal tax rates. As Maya MacGuineas of the Committee for a Responsible Federal Budget has pointed out, it is bizarre social policy to subsidize millionaires who buy vacation homes.
“We need to take a long and hard look at the undergrowth of deductions, credits, and special carve-outs that our tax code has become,” Boehner said in his speech to the City Club of Cleveland. “And, yes, we need to acknowledge that what Washington sometimes calls ‘tax cuts’ are really just poorly disguised spending programs that expand the role of government in the lives of individuals and employers.”
Boehner cited the “tax extenders” bill now making its way through Congress. “There’s everything in this bill: the research and development tax credit, special expensing rules for the film industry, an extension and modification of a tax credit for steel industry fuel, the mine rescue team training tax credit, and tax incentives for investment in the District of Columbia,” he said. “Are they worth it? Many are. But we just go ahead and extend all of them temporarily—and usually right at the last minute—so Washington can continue pandering to the loudest voices instead of implementing the best ideas.”
I can’t believe I’m saying this, but, bravo, Mr. Leader.
Boehner put his finger on the problem of tackling tax expenditures: No matter how arcane the tax break, there are lobbyists poised to defend it at any cost. Your tax expenditure is a special-interest loophole. Mine is a near constitutional right. Don’t even think about touching my: mortgage interest deduction, state and local tax deduction, charitable giving deduction, child care tax credit, flexible health spending account, 401(k), IRA, college spending account, employer-sponsored health care ... well, you get the point.
It’s clear what should be done about tax expenditures. Ronald Reagan and a Democratic Congress did it when they overhauled the tax code in 1986. Broaden the base. Clear out the “undergrowth” that Boehner correctly decried.
Whether he becomes speaker next year or remains the minority leader, he ought to follow through on this one.
Ruth Marcus’ e-mail address is marcusr(at symbol)washpost.com.
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