The Star-Ledger (Newark, New Jersey)
February 10, 2010 Wednesday
Do tax breaks work? Does anyone care
By Carl Davis
McCLATCHY-TRIBUNE NEWS SERVICE
EDITORIAL/OPINION; Pg. 015
Despite all the attention paid to President Obama's recent budget proposal, at least one important section has gone largely unnoticed.
Buried within an appendix, and blandly titled "Performance Measures and the Economic Effects of Tax Expenditures," this section is supposed to explain the administration's efforts at figuring out whether the $1 trillion doled out through special tax breaks each year are worth their cost. Unfortunately, for the second year in a row, the Obama administration has chosen to simply copy-and-paste the Bush administration's language on this issue, complete with all the same promises about what will be done at some point over the "next few years."
Do capital gains tax breaks encourage economic growth? Does the research tax credit result in additional research? Are charitable deductions an effective way to encourage giving? Questions such as these have not been studied in a systematic way by our government, despite numerous promises having been made in this section of the president's budget for over a decade.
Each year the government effectively "spends" more on special tax breaks, or "tax expenditures," than it does on the entire discretionary spending budget (i.e. the part of the budget not devoted to Social Security, Medicare, Medicaid, etc). These tax breaks are usually enacted with the same goals as spending programs, such as promoting education, housing or renewable energy. But they receive only a small fraction of the scrutiny directed at regular spending.
With deficit-reduction quickly climbing the list of legislative priorities in Washington, the need to take a closer look at tax expenditures is growing. The House of Representatives has already shown interest, having passed legislation that extends 50 expiring tax breaks only on the condition that each be subject to a nonpartisan study. The administration, however, is in better position to conduct such studies on a comprehensive basis, and the increasingly bleak budgetary outlook demands that it do so.
During more favorable budgetary times, both political parties were more than willing to enact new tax expenditures (and to continue existing ones) at every opportunity. But with the budgetary outlook continuing to sour, policymakers will soon have to acknowledge that fiscal sustainability requires a close re-examination of the nation's priorities.
To its credit, the Obama administration has begun to turn its attention toward some tax expenditures; more than three dozen, mostly benefiting corporations, were singled out for elimination or reduction in its Feb. 1 budget proposal. This, however, is only the tip of the iceberg. Pushing forward with tax expenditure review could identify numerous additional tax expenditures that should be brought to the chopping block.
Carl Davis is a senior analyst with Citizens for Tax Justice. This article was distributed by McClatchy-Tribune News Service.