Tax Expenditures—The Hidden Entitlements by Robert S. McIntyre and Citizens for Tax Justice
According to Martha T. McCluskey writing elsewhere, one major double standard gets ignored: “Ordinary people get less security—while entrepreneurs—‘risk takers’—get government” protected loopholes, subsidies, bailouts, monopolies, media control, and lobbying power. Examples include the savings and loan bailout, tax expenditures, cable company monopolies, Federal Reserve bailouts, airline bailouts, broadcast spectrum giveaways, IMF bailouts, IMF fixed currency rates, and Small Business Administration loans to convicted felons with no intention of paying the loans back.
This is one of those books that almost nobody reads, yet is filled with important data. It contains a detailed list of tax expenditures—subsidies, loopholes and so on—that will cost $3.7 trillion with a T between 1996 and 2002. If a government agency spends $3.7 trillion it gets noticed. If it is done through the tax code, it sneaks by.
Tax expenditures include deductions for corporations, business meals and entertainment, multinational tax breaks, insurance, tax-free bonds, capital gains, accelerated depreciation, home mortgages, pensions and various personal deductions and other tax entitlements are covered here. Among the most bizarre expenditures are those rewarding companies for moving overseas.
There would be no problem if tax expenditures served an overall benefit and were merited, but most of these entitlements cause overall harm. When the government subsidizes gold mining, for example, we get more mining than we otherwise would—and mine clean up costs and other costs passed on to citizens. And for what? Eighty percent of gold ends up as jewelry.
Every tax attorney busy finding and fighting for loopholes is potentially one less person in the productive economy. The tax attorney down the street might otherwise have discovered a new drug for leukemia.
McIntyre explains why deductions are worth more to wealthier individuals than lower income individuals. An individual in the top income tax bracket gets up to a $3,960 tax break on a $10,000 mortgage payment. A low-income working family of four with a $300 dollar monthly mortgage payment gets nothing. Worse, tax expenditures keep increasing. They cost $434 billion in 1995 and may cost an additional $175 billion in 2002. The mortgage interest deduction will soon cost $60 billion a year, making it the largest housing program on the planet. And that merely covers direct costs. Individuals buying bigger houses, with bigger lawns and bigger energy costs than they otherwise would have create many costs for other citizens. Heaven forbid that anyone should live in a $300,000 dollar home when they could be living in a $400,000 dollar home.
The remark MacIntyre makes about capital gains applies to most tax expenditures. “[P]aying people and corporations to make investments that otherwise make no economic sense undermines economic growth,” and causes many non-economic harms.
Frankly, it amazes me that CTJ even exists, an organization that fights powerful lobbies with boring truths. CTJ is evidence that not everyone has given in to infotainment.
This work has few specific recommendations other than implying that all tax expenditures should be eliminated, but it is a wonderful little book. Highly recommended. Available for free at ctj.org
58p (H) 1996
—Book review article by J.T. Fournier, last updated July 24, 2009