This page was last updated on July 10, 2011.
Closing tax loopholes; Editorial; Beaver County Times; July 10, 2011.
Below is a detailed critique of the subject editorial.
“Are tax loopholes the new ‘waste, fraud and abuse’ weasel words for politicians trying to make it sound as if they are doing something while actually doing very little?
“We’ll see. (Truth be told, there’s very little waste, fraud and abuse in government.)”
[RWC] Does the BCT get its news from The Onion and/or Comedy Central? Oh yeah, I forgot, it does.
You may recall a recent editorial entitled “Real waste, fraud and abuse.”
“As President Barack Obama and congressional leaders from both parties try to hash out an agreement to raise the debt ceiling, the focus on the revenue side is on closing loopholes, those often not-so little favors for special interests that have been slipped into the tax code over the years.”
[RWC] As used by pro-tax outfits like the BCT, a loophole is a legal provision of the tax code you don’t like, usually because you don’t believe it benefits you personally. For example, if you didn’t like the home mortgage interest deduction because you rent or your house is paid for, you would call it a loophole because the deduction reduces the tax liability of taxpayers who can use it, thus raising your tax liability and that of every other taxpayer who can’t use the deduction. You would claim the deduction (loophole) allows some taxpayers to escape paying their “fair share” of taxes.
Wherever the editorial reads “revenue,” substitute “tax.”
From here on you’ll find the editorial appears to use credit, deduction, exemption, and loophole as synonyms. They are not. You should do your own research, but in short, deductions and exemptions (themselves different) reduce your taxable income while credits directly reduce your tax liability.
“But it’s not just special interests. Presidents and Congresses have used tax credits — technically called ‘tax expenditures’ — to promote their social, political, cultural and environmental agendas.”
[RWC] Governments use the tax code “to promote their social, political, cultural and environmental agendas?” Who proofread this editorial? Heads will roll! <g>
“Kansas Star columnist E. Thomas McClanahan reports these special deals and loopholes add up to about $1 trillion a year.”
[RWC] I don’t know if the cited figure is correct or not, but whatever it is don’t be fooled into thinking removing “these special deals and loopholes” would increase tax revenue by “about $1 trillion a year” or anywhere close. To do this by itself would nearly double the effective income tax rate and increase overall federal taxation by about 50%. Does anyone believe such a huge tax rate increase would not kill our economy and drop tax revenue even further? You’ll read more about this below.
“Of course, defining what constitutes a tax loophole could prove sticky, and many tax credits are extremely popular (the mortgage interest deduction and charitable contributions) or have staunch defenders (tax credits for purchasing hybrid cars, solar panels, etc.).”
[RWC] Did you note the editorial failed to note “loopholes” (all sorts of business expenses) used by Calkins Media, Inc., owner and operator of the BCT?
“And don’t forget that some in the anti-tax crowd are bound to see eliminating loopholes and tax credits as backdoor tax hikes.”
[RWC] What would the pro-tax BCT call them? With apologies to William Shakespeare, a skunk by any other name still stinks.
You won’t be surprised to learn the editorial wasn’t exactly forthright about Mr. McClanahan’s column. For example, the BCT chose not to tell us Mr. McClanahan also wrote, “The GOP is right to oppose higher tax rates. But cleaning loopholes and exclusions out of the tax code — in exchange for substantially lower rates — is the way to proceed, as the Simpson-Bowles deficit commission concluded late last year.” You’ll note the BCT mentions nothing about cutting tax rates along with eliminating credits, deductions, et cetera.
“Still, it’s a good place for Democrats and Republicans to start jawing over the revenue-raising side of the debt-ceiling talks.”
[RWC] What a shock, the pro-tax BCT believes tax rate increases are “a good place … to start jawing over the revenue-raising side of the debt-ceiling talks!” The best place to start and end “to start jawing over the [tax]-raising side” is to just say no. The last time I checked, trying to tax your way out of an economic mess never works because it slows economic activity, and slower economic activity means there is less to tax.
The BCT would probably like us to forget that before the current recession began to kick in, tax revenue peaked at $2.6 trillion in 2007, an increase of $577 billion (29%) since 2001. By the end of fiscal year 2007 (the last before the recession), the deficit was down to $161 billion and dropping. Excessive spending is the problem, not tax revenue.
“Just don’t get too enamored with all the loophole-closing talk. If it’s not done the right way, it could prove to be as empty of substance as getting rid of waste, fraud and abuse.
“No matter what happens with loopholes and tax credits, don’t be fooled. There’s still a lot of heavy lifting to do on the revenue and spending sides of the federal budget if deficit spending is going to be addressed realistically.”
[RWC] Why do the same people who push high “sin tax” rates to cut “bad” activity (drinking, gambling, smoking, etc.) then try to tell us higher tax rates on income will spur greater economic activity, or at least won’t have an effect?
In what was probably another proofreading faux pas <g>, the BCT once conceded “Raising taxes could slow the economy.” Looking at this from the positive side, cutting tax RATES increases economic activity because people get to keep more of what they earn. It’s simple human behavior; the more you get to keep, the more you will produce. As a result, lower tax RATES result in greater tax revenue because the lower RATE applies to a bigger pie. For example, 40% of a 10” pie is 25% more than 50% of an 8” pie. If the BCT believes tax rate increases will help “deficit spending … to be addressed realistically,” it is ignoring history and logic. The best way to increase tax revenue is via an expanding economy, and higher tax rates work against that goal.
© 2004-2011 Robert W. Cox, all rights reserved.