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Monday, July 23, 2012

NY Times: Tax Loopholes Block Efforts to Close Gaping U.S. Deficit

New York Times:  Tax Loopholes Block Efforts to Close Gaping U.S. Deficit, by Jonathan Weisman:

As a member of the “Gang of Six,” Senator Mike Crapo of Idaho has emerged as something of a hero among advocates of bipartisanship, one of three conservative Republicans working with three Democrats to cut the deficit by closing loopholes that allow businesses and households to avoid paying taxes.

Yet earlier this year, the senator made sure that a $3 billion loophole — protecting “black liquor,” an alcoholic sludge used as fuel in timber mills and factories — remained open in the negotiations over the highway bill that President Obama signed this month. Many budget experts criticize the loophole as a tax dodge because it allows the sludge to qualify for an energy subsidy created to wean the country off imported oil for vehicles, which black liquor does not do.

On Capitol Hill, lawmakers casually point to closing loopholes as the answer to much that ails the country. Negotiations to avoid automatic military spending cuts in January, to enact sweeping deficit reduction and to lower corporate and personal income tax rates all hinge on closing unidentified loopholes.

But the back-room actions on black liquor point to just how difficult it will be to lower the budget deficit through painless changes in the tax code. Even for a self-proclaimed deficit hawk like Mr. Crapo, one man’s loophole can be another’s vital constituent interest. ...

Federal tax receipts are reduced by more than $1 trillion a year by various tax deductions and credits, known as tax expenditures, often tied to a policy aim. Ending them would nearly eliminate the federal deficit, which is projected to be $1.2 trillion in the current fiscal year.

But the three largest are as popular as they are expensive: the mortgage interest deduction has cost about $75 billion a year recently, the employer deduction for health care has cost $120 billion a year, and the charitable-giving deduction has cost $38 billion a year, according to the bipartisan Joint Committee on Taxation.

(Hat Tip: Mike Talbert.)

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Comments

Perhaps The NYT hasn't considered the real deficit problem, so that it could write a more appropriate article titled, "Waste, Overspending, Corruption, and Cronyism Block Efforts to Close Gaping U.S. Deficit."

Posted by: Woody | Jul 23, 2012 10:47:10 AM

Does anyone sincerely believe that tax rates would have been enacted at their present and recent historical levels in the absence of mass-market tax breaks which cushion the blow? The tendentious "loophole" characterization promotes a counter-factual combination of high rates and low deductions and credits.

Advocates claim they want to restore fairness, but they would "restore" what has never existed. Enough with the pretense! Just admit that you want a TAX INCREASE. Call it a tax increase, not deficit reduction. Sell removal of deductions/credits as the most efficient way to accomplish it. That's an honest argument which respects the readers' intelligence.

Posted by: AMTbuff | Jul 23, 2012 12:43:58 PM