There have been few occasions throughout the past six years when I have found reason to praise President Barack Obama. Rarer still are the times that I have been critical of a proposal to cut taxes.
But in threatening to veto the so-called “tax-extenders” legislation currently making its way through the lame-duck Congress, the president may be doing the
right thing.
As with most bad legislation, the tax-extenders bill has bipartisan support, ranging from Sen. Harry Reid, D-Nevada, on the left to Republican Sen. Jim Risch from Idaho on the right. But if this is an example of Congress “getting things done,” we would be better off with more gridlock.
That is not to say that the extenders legislation contains no good ideas. Some portions are valuable, such as making the research-
and-experimentation tax credit permanent and continuing an immediate write-off for some types of small-business investment. But most of the legislation is
a grab bag of special-
interest giveaways.
There is also the usual collection of tax breaks for the makers of energy-efficient appliances and the builders of environmentally conscious homes. And of course it wouldn’t be a proper piece of special-interest legislation without a tax credit for the producers of cellulosic biofuels — that is, ethanol.
Hollywood also gets a reward, in the form of an extension of special expensing rules for movie and television production. Other winning industries include railroads and NASCAR, which continues to receive its special depreciation rules. Actually, Congress appears to like all types of racing, since the owners of race horses under three years old also get a special depreciation schedule.
And if all this drives you to drink, don’t worry. There’s a provision extending the special tax break for Puerto Rican rum.
Even the few provisions designed to help ordinary taxpayers are likely to have unintended consequences. For example, state income taxes have long been deductible from federal taxes, but this legislation would allow taxpayers to choose to deduct state and local sales taxes instead, meaning that people in states with no income tax would now benefit from the deduction as well.
But such tax breaks simply encourage states to raise their taxes. They are, in effect, a reward for high-tax states. Economists estimate that state taxes are 13 to
14 percent higher than they would be in the absence of federal deductibility.
Similarly, the AmericaHouse leaders are reportedly considering a short-term measure that would extend the tax breaks only through January, letting the new Republican-controlled Congress take another bite at the apple next year. That would be better than the Senate version.
But a better idea yet would be to just dump the whole thing. Then Congress can get about the real business of broad, pro-growth tax reform that will lower rates and remove special-interest favors from the tax code.
No doubt we need tax reform, both personal and corporate. This isn’t it.
Michael Tanner is a senior fellow at the Cato Institute. Send comments to [email protected].