Tax Freeloaders

Tax Freeloaders

The Senate is working on a compliment to the recently passed $15 billion jobs bill. This nearly $150 billion package is supposed to help the nation’s unemployed by extending unemployment benefits and other provisions through the end of the year. Oh, and it also extends giveaways to the coal industry, subsidies for rum distillers that should make Captain Morgan blush, NASCAR track aid, and is a blockbuster for film makers.

These provisions and their other “tax extender” brethren have routinely caught a ride on legislation pulling out of Capitol Hill station. In fact, they could be redubbed the “tax caboose.” At the same time Congress was wrestling with whether to bailout the financial industry in the fall of 2008, these extenders caught a ride on that train. This time it’s popular economic relief measures.

These renewals are on auto-pilot. A bunch of unrelated provisions, they are strung together into one package and reflexively renewed again and again for a year or so, with little or no debate on their merits.

So many of these tax provisions are innocuously titled as simple “extensions”, or referred to as “temporary.” But the “temporary” rum tax refund for Puerto Rico and the U.S. Virgin Islands has been in place since the first years of the Clinton Administration. And the Virgin Islands is tapping this refund in order to spend billions of dollars building Diageo, the world’s largest liquor conglomerate, a new distillery for production of Captain Morgan rum. In fact, these provisions exist in a kind of tax never-never land – they aren’t made permanent but they don’t really expire either. Yet once they make it into the “extender” package, they are never really reviewed to determine if they are still appropriate or effective.

And every time the extenders are considered, it seems like a few new ones try to hop on the caboose. In this bill there are a bundle of energy tax provisions. One example is a subsidy for the white elephant coal liquids industry . The bill proposes extending generous tax breaks for this industry despite a track record of high costs and failed taxpayer investments.

Tax expenditures – not just these “extenders” but other breaks in the tax code—are rarely scrutinized once they are on the books. The jumbled thousands of pages of our tax code create a costly complexity to average taxpayers and businesses. According to one estimate , simply capping the annual automatic growth in tax expenditures would yield billions in savings over a few years.

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Tackling all tax expenditures is a heavy lift. But for a start, we should at least be reviewing whether giving a break to race track owners or the long list of other tax breaks for a variety of good goals are actually working. Rather than a knee-jerk extension of a litany of tax provisions in a free-rider package, Congress should thoroughly re-examine each and every one of these provisions to ensure they are necessary and appropriate.

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