“Suddenly, a tax package designed to extend a trio of popular middle-class tax cuts is being eyed as the legislative vehicle to extend a host of other expiring tax breaks from research credits for corporations to tax credits to promote economic development at ground zero in New York.
Overriding Democratic objections that further tax cuts should be offset to keep the country’s deficit woes from worsening, Republican tax writers worked Wednesday to add business tax breaks to a package originally dealing only with middle-class taxpayers. (…)
The bill would cost the Treasury $145.7 billion in lost revenue over a 10-year period, according to a preliminary committee estimate, with $131.5 billion of that covered by extending three tax cuts that are due to expire at the end of this year.
Those measures include the $1,000 per child tax credit, which was scheduled to drop to $700 next year, tax breaks for married couples and continuation of an expanded 10 percent tax rate that means lower tax bills for virtually all taxpayers because it a bigger portion of earnings would be taxed at the lowest rate. All thee current provisions are due to expire this year. [sic, for the whole sentence.]
The conference committee also was considering a $12.6 billion package of 20 tax breaks covering a variety of items from extending tax benefits to support development of the New York Liberty Zone, the portion of Manhattan devastated by the Sept. 11 attacks. Republicans also wanted to extend other tax credits such as one that supports the purchase of electric cars and another that supports production of electricity from biomass materials such as poultry litter.
The biggest corporate tax breaks involved extension of a research and experimentation tax credit for one-year at a cost of $7.56 billion. Another $419 million in tax breaks would be earmarked to extend a deduction for teachers’ out-of-pocket classroom expenses.”
Bankrupting the country in order to support the production of energy from poultry litter? Dude,I am so there. I mean, there’s too much unelectrified poultry litter sitting around anyways, particularly here in Maryland, so why not use it to power our new electric cars? Maybe we could convert it in the car, while we drive. The possibilities are truly limitless.
Seriously, does anyone else get the feeling that the Congressional Republicans are actually trying to annoy von?
Actually the production of energy from animal (or even human) waste is often overlooked when discussing alternative energy. It produces carbon dioxide, but that’s preferable to the methane just floating away unused.
But when you’ve got as a many ridiculous tax incentives as we do now, you’d be better off rolling all of it into a general tax cut for everyone.
extending tax benefits to support development of the New York Liberty Zone, the portion of Manhattan
Yes, we need to keep these, because – ya know – no one wants to invest in Manhattan real estate when there’s all that land in Montana available.
“Yes, we need to keep these, because – ya know – no one wants to invest in Manhattan real estate when there’s all that land in Montana available.”
Lol. Its funny ‘cos its pathetic.
Ahem,
The last production electric cars were turned back to the manufacturers this year. The owners pleaded to no avail to keep their beloved vehicles, but it wasn’t to be. There are NO viable electric cars available from any major auto manufacturer in spite of the success of the cars that were on the road. With this bill, every congress critter can look good as an environmentalist, but not a dime is going to be credited to a single American taxpayer because of this. Golf carts just don’t cut it.
Hey, wait a minute: real estate in Montana presents tremendous investment opportunity!
Go Bobcats!
Umm, I respectfully dissent from this one, Hilzoy. Any fuels initiative that begins with “bio” ain’t worth the crap it’s derived from — it’s pure pork, so to speak — but the rest of the breaks and extensions are defensible.
If you look in the basement of Congress you’ll find hundreds and hundreds of pods. What they’re for nobody knows but they are known to have come from a rare strain in Texas.
This is an alarming trend. CAGW’s Porkers of the Month have been given with distressing frequency to Republicans, but of late.
They’re giving tax breaks to investors in Manhattan so they can claim that the $20B promised three years ago is actually being delivered.
Meanwhile, we get another year of buying machinery instead of hiring workers. In that context, a biomass tax credit at least supports R&D.
Which only leaves us to wonder, CharleyCarp, what the Charlotte NBA team has to do with Montana.
I’d guess they’re getting a dental floss kickback.
At what rate has government spending been increasing since Bush has been in office?
An average of 12% per year.
Source: Congressional Budget Office – Monthly Budget Review – Nov. 7, 2003, http://www.cbo.gov/showdoc.cfm?index=4718&sequence=0
At what rate did government spending increase over the decade before Bush took office?
An average of 4% per year.
Source: Congressional Budget Office – Monthly Budget Review – Nov. 7, 2003, http://www.cbo.gov/showdoc.cfm?index=4718&sequence=0
Over the past 40 years, how has the balance between individual and corporate taxes shifted?
Currently corporations are paying less than half the percentage of federal tax they were paying in 1962.
In 1962 individuals paid 69% and corporations paid 31%. (Individuals paid $45.6 billion, corporations paid $20.5 billion.)
In 2003 individuals paid 86% and corporations paid 14%. (Individuals paid $794 billion, corporations paid $132 billion.)
Source: Congressional Budget Office – historical data, Congressional Budget Office – Monthly Budget Review – Nov. 7, 2003, http://www.cbo.gov/
So let me be clear what I think about these tax cuts, rather than merely punchy, as I was when I wrote the post.
First, if I got to decide, the tax cuts that are being extended are the ones I would support. The ones that really, really bother me are the tax cuts for the rich, and what bothers me about them is not that there are some tax cuts for the rich, like everyone else, but that the tax cuts are overwhelmingly skewed towards the group that (a) needs them least and (b) is least likely to use them in ways that stimulate the economy.
I also support tax cuts for business research, though in my view this is the sort of thing where the devil truly is in the details, and so I think it would be worth looking at this tax cut in particular if I wanted to decide what I thought of it. I think that funding public schools adequately is a much better option than giving teachers a tax break for stuff they pay for out of their own pocket, but absent adequate funding, OK. Electric cars — I’m all for them, but AFAIK they are not commercially available in serious numbers, so why we need to encourage people to buy them rather than hybrids, and subsidize research into electric cars directly, is a mystery to me. I am skeptical but persuadable in principle on the poultry litter.
What bothered me about this was, first, the “let’s just throw everything in there” attitude; second, the fact that the coverage that I read suggested that the Democrats caved because they were afraid that if they didn’t, their Republican opponents would do to them what they did to Max Cleland; and third, the apparent absence of any serious thought, on the part of the Congressional leadership, that it’s worth so much as asking whether we can afford this stuff. I mean: according to me, at least, the deficit is a really, really big deal, which might very well cause us really, really serious problems, and we need to deal with it. And this article did not suggest that the Congressional leadership has any interest in doing so.
Plus, of course, the thought that while if I got to decide, most of these are tax cuts I’d leave in place, I don’t get to decide, and so they’re tax cuts that will have to coexist with the rest of them.
“We don’t know all of the details, but we know that people who inherit hundreds of millions will pay nothing; firemen and waitresses and working people will pay everything. And we know his plan will take away the most important incentive for the single most important form of ownership: it will eliminate entirely the tax deduction for home mortgage interest.”
“Our economy, our people, and our nation have been undermined by the crony capitalists who believe that success is all about working the angles, working the phones, and rigging the game, instead of hard work, innovation and frugality. And these manipulators find comfort in an Administration which, through its own example, seems to embrace that ethic. We will never turn this country around until we put our economy and our government back in line with our values.”
John Edwards
I’d like to see a cite for this.
To clarify, not a cite that Edward said this, but a cite that the mortgage deduction is in fact on the chopping block.
“a cite that the mortgage deduction is in fact on the chopping block.”
Edwards was referring to some of the internal adminstration memos released by former Treasury Secretary O’Neill, in connection with his book.
I won’t give a link, since I’m semi-computer illiterate and don’t want to break the comments section, but I found this on the Kerry campaign webste, after a quick google search on a phrase from Edwards’ remarks.
I saw it there too, rea, but I’ve not found any connection to anything the administration is even idly thinking about doing.
“I’ve not found any connection to anything the administration is even idly thinking about doing.”
Well, for one thing, if the Secretary of Treasury is getting memos about it, it seems clear that the administration is at least “idly” thinking of doing it.
For another thing, the administration has been floating trial balloons about drastic changes to the tax structure in any second term. Many of those ideas (flat tax, or replacing income tax with consumption tax) are hard to reconcile with the continued existance of the mortgage deduction.
If Bush thought the last election was a mandate I can’t imagine what he’ll think what winning this time will be.
A license to ill?
BusinessWeek thinks it a possibility, under Bush’s tax reform overhaul but also admits it’s politically untenable. WRT to a consumption tax scheme:
Later, BW offers:
It should be noted that whacky group, the Club for Growth, is promoting a flat tax scheme (the so-called Armey Plan) which calls for elimination of the home mortgage deduction, among other things. John Snow has been a flat tax advocate in the past.
I thought we were talking about the former SecTreas. In any case, where’s the memo? Who wrote it? What’s the context?
In any case, where’s the memo? Who wrote it? What’s the context?
Not another MEMOGATE!!! Lord have mercy.
Please, Edward. I just want to know where this claim came from that the administration was actively working toward removing the mortgage deduction. So far, all I’ve seen is that some guy who was last SecTreas nearly two years ago had it on a memo in some unspecified context. That’s just not good enough to support a claim made by an aspiring VP, IMO.
About the question “what was Edwards talking about?” one huge caveat: Bush has not, to the best of my knowledge, explained what he means by ‘reforming and simplifying’ the tax code, so it’s all reading tea leaves at this point. That being said, a consumption tax would, as Business Week suggests, mean repealing the mortgage deduction. Moreover, so would a flat tax, which Bush has also (if memory serves) said is an option that has to be considered. It’s not, I think, a mystery what proposals would have this effect. or that Bush has at times entertained them.
What would clear everything up is a clear explanation of what, exactly, he proposes. The clearest statement I can find on his website just says: “President Bush will work with Congress to make the tax code simpler for taxpayers, encourage saving and investment, and improve the economy’s ability to create jobs and raise wages.” But that is a bit short on specifics.
Small correction, Hilzoy.
Most flat tax schemes eliminate deductions. A consumption tax scheme wouldn’t necessarily have to eliminate the home mortgage deduction–however, the revenue shortfalls would have to made up somewhere.
True enough. I really wish I could find the time to be a bioethicist and an economist (and a constitutional lawyer, and, hey, why not a stonemason) all in the same lifetime. Oh well.
,
hilzoy
You’re not a stonemason!?! And all this time I thought…
Oh. I had no idea we were talking about that John Edwards.
8p
Slart — here’s a link to the memo people were talking about earlier: link. It’s from just under 2 years ago, and is a discussion of various proposals for simplifying the tax code. And here’s a link to an article in Slate, discussing it.
So, in other words, Bush’s purported plan to roll back mortgage exemption traces back to a report written by the assistant secretary for tax policy to SecTreas. Two years ago.
Hmmm…if nothing’s happened since then, why does Edwards think there’s some plan in the works? There have been endless discussions on simplifying the income tax code (can we agree that code simplification might be a good thing?) and few of them have come even close to becoming law.
Slart — as I mentioned earlier, Bush has talked about proposals involving elimination of the mortgage deduction much more recently, e.g. here.
I think this thread demonstrates why we will have this enormously complicated tax code forever. Everyone can think of things they’d like to see tax breaks given for, and almost everyone will fight for any tax break, no matter how indefensible, if they get it.
Is there any good reason why it makes sense to subsidize anything with a tax break rather than with a direct subsidy check? It looks to me like the only reason is that a tax break looks less like a giveaway. But if you have to collect $X in taxes regardless of who gets a break, giving a tax break to homeowners who are still in the early years of paying off their mortgages, or people who drive cars that get good mileage, is pretty much indistinguishable to just sending those people a check for the amount of their tax break, and raising taxes on everyone enough to compensate.
Actually, there is one advantage of doing subsidies by tax breaks: It makes sure that poor people and people who can’t either hire an accountant or wade through thick manuals on tax law don’t horn in on the benefits. I suppose it also makes for more business for tax experts, both getting the intended tax breaks, and using them in ways never intended by congress.
–John
Ah. A link! Thanks!
If I’m not mistaken, I believe the conversation about tax code simplification came up during the Reagan years (and perhaps the GHWB years as well), and nothing came of it.
That the tax code could use some reform is nearly self-evident. How to actually implement said reform without putting the screws to anyone is hard. Getting enough politicians to agree to that something ought to be done and what to do is nigh-on impossible.
According to the NYT, after approving the tax cuts, House Republicans are going to vote on a balanced budget amendment next.
This would be hilarious in a movie, but in real life it’s frightening. These guys are running the country?
Actually, it’s really straightforward.
Perhaps they’ve decided (probably under the hammer of Norquist, et al) that it’s much easier and politically palatable to reduce spending by choking off the main supply (tax cuts) and then killing off alternate methods of supply (borrowing and running a debt) than it is to call for the cuts directly. Plus it has the benefit over direct spending cuts that you can’t just ramp up spending again when you’re sitting on a surplus. Plus they can probably find a way to blame any resulting heartache on the Democrats.
I’ll add that I fully approve of the first two effects (federal income reduction and elimination of debt financing). Blaming bad things on Democrats I’m neutral on.