Opinion Editorial | |
| Monday, January 25, 1999 | |
Clinton Is Proposing More Tax Gimmicks |
One of the hallmarks of liberalism in the U.S. used to be an antipathy for tax gimmicks. In the past, liberals ridiculed special tax deductions, exclusions and credits as "tax expenditures." Such devices were thought to be inefficient compared to direct spending programs, ill-targeted and contributed to excessive complexity in the tax code. They were also thought to be unfair because in general they were only available to those who itemized their tax returns -- mainly the wealthy (see figure).
Liberal tax theorists, such as Stanley Surrey of Harvard University, fought to eliminate all tax expenditures. And liberals strongly supported major tax reform bills in 1969, 1976 and 1986 that went a long way toward achieving Surrey's goal.
Today, however, all that has changed. Virtually every major initiative put forward by Bill Clinton in his State of the Union Address last week involves adding new gimmicks to the tax code. He would enact new tax credits for long-term health care, stay-at-home parents, high-mileage cars, adult literacy, disabled workers and the steel industry, to name just a few. All of these would be paid for with a 55 cents per pack increase in the cigarette tax. (Liberals also used to oppose increases in excise taxes because they are regressive, taking more out of the pockets of the poor.)
What is behind this mania for tax gimmicks? The main answer involves arcane budget rules. Under procedures adopted in 1990 and extended in 1997, all tax cuts, no matter how small or gimmicky, must be offset with tax increases or cuts in entitlement programs such as Medicare. This rule, known as the pay-go rule, applies equally whether there is a surplus or a deficit. And since tight spending caps virtually preclude any new spending programs, all that is left is the tax gimmick route if Mr. Clinton is to have any sort of domestic program.
Thus we have been forced by budget rules to adopt policies that almost all experts agree are ill-suited to their purpose and contrary to good tax policy. Instead of adding new gimmicks to an already complicated tax code, we should be weeding-out those that remain while reducing tax rates. Instead of forcing people to jump through hoops to get a minuscule tax credit, we should be reducing tax rates across-the-board for all taxpayers. And the pay-go rule, which was instituted for the sole purpose of reducing deficits, should be jettisoned in this era of surpluses, so that we can once again make rational tax and spending decisions.
Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, January 25, 1999.
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