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Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, December 13, 2012

Senator Coburn Releases Ten Tax Expenditure Reforms

CoburnSenator Tom Coburn (R-OK) has released Ten Tax Expenditure Reforms & Eliminations: $315 Billion Over Ten Years:

The tax code is long overdue for comprehensive restructuring. Yet, instead of considering broad reform to simplify the code and lower rates, Washington continues to exacerbate the problem—doling out tax breaks and subsidies in the form of tax credits to well-connected companies and special interests with powerful lobbyists who seem to have more influence than most members of Congress. Even worse, some want to simply raise tax rates without addressing the underlying waste, spending and corporate giveaways embedded in the tax code.

Masquerading as tax cuts, many of these programs are no different from any other federal program that spends taxpayer money. Cleaning up the code by eliminating the most egregious tax giveaways will not only generate revenue, but also pave the way for reducing tax rates for all Americans and small businesses. While Washington delays undertaking true tax reform, the following ten expenditures could be immediately eliminated or reformed to reduce the deficit by more than $315 billion over the next ten years.

Coburn Chart_Page_1

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A look at the details shows that Senator Coburn's proposal is nonsense. 90% of the so-called savings comes from what's called "eliminating tax breaks for millionaires". And what are those tax breaks? Sen. Coburn mentions seven, but only three are material.

Over half the total ($64 bb out of $112bb during 2006-09) represents expenses of owning rental property. Such expenses are costs of getting income, not "tax breaks", and they need to be taken into account when calculating the *net* amount of income that is to be taxed. [The passive activity rules limit the deduction of net losses against other income.] Is Sen. Coburn really suggesting that property owners be taxed on their gross receipts? Is there some magic phase-out rule that would limit this policy of landlord confiscation so it would only apply to landlords with million dollar incomes?

Similarly, another $20 billion of Sen. Coburn's "tax breaks" represents the deduction of gambling losses against gambling winnings -- the excess losses aren't deductible in any case. Should gambling *losers* be taxed on gross receipts even if the have no net income? [cf. Zarin v. Comm'r]

The third major deduction involves $27 billion in home mortgage interest -- but again, how would the Senator eliminate this for income millionaires while preserving it for the less fortunate. He doesn't say -- probably because he has no idea of how to implement it.

Great headline, vacuous ideas. Tax stupidity masquerading as tax reform.


Posted by: Gwailo | Dec 14, 2012 1:49:48 PM