NCPA - National Center for Policy Analysis

Clinton Is Proposing More Tax Gimmicks

January 25, 1999

U.S. liberals used to ridicule special tax deductions, exclusions and credits as "tax expenditures." They thought such tax gimmicks were 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.

Thus liberals strongly supported major tax reform bills in 1969, 1976 and 1986 that went a long way toward eliminating so-called tax expenditures.

Today, however, 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.)

This mania for tax gimmicks involves arcane budget rules. Under procedures adopted in 1990 and extended in 1997, all tax cuts 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.

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.

Source: Bruce Bartlett, senior fellow, National Center for Policy Analysis, January 25, 1999.


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