Gussying up the garbage
Tue Feb 10, 2:30 PM ET
BY JODIE T. ALLEN
There is nothing shy about the bush administration when it comes to putting the best possible face on its plans. But even seasoned budget watchers who thought that when it came to cosmetic enhancement they'd seen it all were awestruck by the aesthetic extravagance, the unparalleled daring of the fiscal 2005 budget that the president unveiled last week. "Irresponsible," "unbalanced," "deceptive" were among the tamer epithets tossed about by critics on both right and left. Forget the Super Bowl striptease; for unabashed exhibitionism, this budget is hard to beat.
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Where to begin? In its pumping up of this year's deficit--the better to accommodate election year handouts while making it easier to meet Bush's promise to halve the deficit in five years? In its omission of any costs for military operations in Afghanistan (news - web sites) or Iraq (news - web sites)? Its choice of five-year, rather than the usual 10-year, forecasts, so that the cost of fully phasing in and making permanent the president's tax cuts and prescription drug program wouldn't be revealed? Its pretense that relief from the creeping alternative minimum tax need only be extended for one year?
Still, for unmitigated gall--not to mention miserable policymaking--it's hard to beat the half-a-Paygo rule the president would impose as a curb on the runaway budget deficit. Paygo, you may recall, was the budget constraint Congress imposed on itself in the 1990s whereby any increase in spending or cut in taxes had to be offset by a corresponding spending cut or tax hike. Of course, Congress found ways to skirt the restriction, but by and large it had a salutary effect; witness the now vanished surpluses that the current administration inherited. Bush, however, would apply the rule only to direct spending, with no limits on tax breaks. The result would be both predictable and pernicious: The spending wouldn't go away; it would just go under cover, hiding out within the already labyrinthine corridors of the tax code.
Ever since "spending" became a dirty word in the political lexicon, and "tax cuts" became an unalloyed good, legislators have become pros at disguising the former as the latter. "Any policymaker worth his salt knows how to create expenditures and subsidies in the tax system," says Urban Institute tax expert Eugene Steuerle, who, as a treasury official during the Reagan administration, coordinated the project that led to the tax reform act of 1986. "It's open season for every special interest in Washington to push their own tax preference," says Thomas Kahn, minority staff director of the House Budget Committee.
For any lobbyist still unskilled in the art, the Bush budget offers an instructive list: tax subsidies for everything from health and nursing home insurance to out-of-pocket classroom expenses, brownfields reclamation, and charitable donations of excess food inventories. At this rate it is only a matter of time before your local government offers you a tax credit for picking up your own garbage.
Oversold. True, as both Steuerle and Kahn note, tax subsidies are sometimes the best way to promote an activity. But, says John E. "Buck" Chapoton, who as Reagan's assistant treasury secretary for tax policy oversaw the 1986 reforms, "tax incentives can be way oversold." Too often they end up mostly subsidizing activity that would have taken place anyway (investment and hiring incentives are well-documented examples) or having little effect (the low takeup rate of health insurance tax credits for laid-off workers being a recent case in point). By and large, says Chapoton, now a partner in an investment firm, "tax benefits are inefficient; they undermine the tax system, and somebody still has to oversee how they work. You just move the bureaucrats from a program agency to the IRS."
You also add another layer of fat to the overstuffed tax code which, in nearly two decades of tax-spending subterfuge, has more than regained the weight it lost in the 1986 streamlining. That's an added concern to Chapoton and Steuerle who, like most tax experts, favor a simple tax system, one that interferes as little as possible with individual or business decision making. Every special tax break not only distorts private market incentives but also ultimately requires higher tax rates on individuals and businesses not singled out for favoritism. Worse yet, Steuerle notes, tax subsidies "are not transparent. They tend to hide what government is doing. As a result, they make bigger government look like smaller government."
One such sleight of hand that Chapoton says "really bugs him" is the Bush proposal to replace current IRAs with new tax-favored "lifetime savings accounts." These are structured so as to give a short-term revenue boost but at large long-run cost to the treasury. "To hide the cost of this incentive is to make our children and grandchildren pay for our benefits." So what else is new? |
