Senate Finance Leaders push "blank slate" to tax reform

by Linda Beale

Senate Finance Leaders push “blank slate” to tax reform

Senators Baucus and Hatch, the Chair and ranking minority member of the Senate Finance Committee, respectively, launched a bid for completing a Code reform before Baucus leaves office with a letter to Senators telling them that they should get their bids in within the month for any tax expenditures they want to preserve. See Letter from Baucus and Hatch (June 27, 2013).

At first glance, this doesn’t sound like a terrible idea. There are, indeed, too many tax breaks in the Code for huge estates, owners of capital, Big Oil, Big Pharma, “Non-Profit” hospitals, and corporate executives’ deferred pay. Wiping them away and then thinking through things fresh might be a part of a process for real tax reform that makes sense.

But it isn’t clear that this duo can possibly carve a better system this way. They have both already bought into the idea that the US has to “lower rates” to let Big Business be “competitive”, an idea that ignores business reality and sets Congress up for a series of lobbying “auctions” (this tax break for that campaign contribution) [hat tip Evelyn Brody ]. They are both therefore part of the avid group of Big Business supporters who want to cut taxes, not raise revenues to deal with infrastructure needs, safety net needs, climate change, and the many other challenges that face a nation that has spent 40 years in the thrall of bankrupt Chicago School market theories that support winner-take-all systems. Both have touted the idea that taxes should be “simpler”–as though having language that two-year-olds could read would be a reasonable way to ensure that the most sophisticated legal minds hired by the wealthiest Americans don’t scam the system! Remember that most of the complications in the Code are there to do two things–to provide special tax subsidies lobbied for heavily by Big Business (with a few for ordinary folk) and to prevent sophisticated (rich) taxpayers from ripping off the system as much as possible.

Worse, these two have both already made it clear that the group they really want to hit are those who benefit from Social Security and Medicare expenditures–their goal isn’t to make our social safety net sustainable through the centuries, but to cut holes in it so that the money can leak out in tax rate cuts to line the pockets of the wealthy heirs, the overpaid CEOs, and the banksters that caused the worst economic recession since the Great Depression, at great personal cost to millions of ordinary Americans who have lost their jobs, their homes, and their prospects for the future because of it.

Not surprisingly, their letter to fellow Senators starts with their claim that the current Code is “broken” “riddled with exclusions, deductions, and credits”, with the result that “[t]he complexity, inefficiency and unfairness of the tax code are acting as a brake on our economy.”

Now, there are problems with the Code, that I won’t deny. But this litany of evils is just what the lobbyists for the corporate and wealthy ordered–it buys into the attempt by free marketarian/Chicago School economists to paint taxes as evil, as sources of anticompetitiveness, as such dragging anchors on businesses and entrepreneurs that it holds back the economy and “forces” Big Business to offshore its work to cheaper labor elsewhere. And it sets the stage for an outcome that removes anti-abuse provisions and decimates progressivity in favor of the “identity theory” notion of fairness–that you have to have a flat rate that treats everybdoy the same to be fair.

Why is the identity theory of fairness absurd? Because it ignores context. It is like saying an Ant is as big as an Elephant, by ignoring the relativeness of size which is essential to the notion of bigness/smallness. In other words, we can’t talk about “fair” without some idea of the scale on which fair is to be measured. And saying that “taxing everybody at the same flat rate” is inherently “fair” (as the right-wing proponents of a flat national sales tax tend to do) misses the point of what fairness is all about!

Then Baucus and Hatch turn to their concept of the “blank slate” and the appeal for senators to name their favorite tax expenditures (ie, their favorite pet interest groups).

We need your ideas and partnership to get tax reform over the finish line. In order to make sure that we end up with a simpler, more efficient and fairer tax code, we believe it is important to start with a “blank slate”—that is, a tax code without all of the special provisions in the form of exclusions, deductions and credits and other preferences that some refer to as “tax expenditures. This blank slate is not, of course, the end product, nor the end of the discussion. Some of the special provisions serve important objectives. Indeed, we both believe that some existing tax expenditures should be preserved in some form. But the tax code is also littered with preferences for special interests. To make sure that we clear out all the unproductive provisions and simplify in tax reform, we plan to operate from an assumption that all special provisions are out unless there is clear evidence that they: (1) help grow the economy, (2) make the tax code fairer, or (3) effectively promote other important policy objectives.

Of course, this “blank slate” approach is a call to arms for all lobbyists, who have already begun aiming their impressive resources at their selected targets. See Politico, Tax Lobbyists Spring Into Action .

But beyond that, note what it says about the provisions–it will keep those that encourage economic growth, increase fairness, or promote other policy objectives. We already know what lobbyists say about all of the provisions that they favor for Big Business and Big Money–that if you don’t give favorable tax provisions to all those wonderful (purported) job creators, the economy will crash. And we already know who will use the “make the code fairer” arguments to support their views–it will be the right-wingers who want to eliminate social safety net provisions from the Code. They have lots of money from the Koch brothers and other right-wing wealthy individuals and institutions and lots of paid “scholars” like Cato, and Heritage and all the others to push their views. Tell me–just who is going to lobby for the real concept of fairness in the Code–like (i) getting rid of the preference for capital over labor, (ii) getting rid of tax favorable treatment for any deferred payment or pension plans that are available only to the top managers of firms, (iii) instituting a decent estate tax that begins to eat into the oligarchic dynasties that we’ve allowed to be created by such limp excuses for estate taxation (including not only much higher rates with more rate brackets, but also elimination of most of the gimmicks using trusts and partnerships and purported discounts; or (iv) creating a much more discriminating rate structure for the income tax that recognizes differences of income in magnitudes as they exist today , with rates for brackets that include half a mil to a mil, a mil to several mil, several mil to 20 mil, 20 mil to 80 mil, 80 mil to 150 mil….and on to the two billion mark? And who is going to make the pitch that we have to raise more revenues in order to meet the needs of the aging baby boomer population as they retire with savings decimated by the Great Recession, homes lost to the lack of banking oversight, and facing significant increases in medical care costs?

It’s pretty clear that neither Baucus nor Hatch has any desire to deal with real fairness issues, since that would require INCREASING THE PROGRESSIVITY OF THE CODE. Note what they say to their fellow senators about the task ahead.

The blank slate approach would allow significant deficit reduction or rate reduction, while maintaining the current level of progressivity. The amount of rate reduction would of course depend on how much revenue was reserved for deficit reduction, if any, and from which income groups.

This phraseology reveals perhaps more than they wanted to reveal–first, that they are not even contemplating increasing progressivity, in spite of the past 40 years of reductions in progressive features. And second, they really aren’t planning to use elimination of tax expenditures to raise more revenues to make up for the absurd Bush tax cuts that they both helped put into place–note that they say the rate reduction will depend on whether any money is reserved for deficit reduction, providing a pretty strong indicator that there will be no revenues used for government and all the “reforms” would go to another foolish round of tax cuts.

Kitty Richards at ThinkProgress has some similar concerns about this “blank slate” announcement. See Richard, Why we should be wary of ‘blank slate’ tax reform, ThinkProgress (June 27, 2013). First, using the analysis done for the Simpson-Bowles “zero” plan (which was actually more protective of the lowest income than Baucus-Hatch have declared themselves to be), it would be very difficult to maintain progressivity (much less increase it as I have suggested is required) if base reduction is used to lower rates, since those who benefit most from lowering rates are the taxpayers with the most income.

The Tax Policy Center estimated the effects of the plan and found that it would have disproportionately increased taxes paid by low-income and middle-class families, not even taking into account the expiration of the Bush tax cuts for taxpayers making more than $400,000 per year legislated in last year’s “fiscal cliff” deal. If you compare average federal tax rates under the zero plan and under current law, the zero plan looks even worse – it would actually cut taxes for the top one percent by 10 percent, while more than doubling tax rates for the poor and increasing taxes on the middle class substantially.

Second, she adds, the Baucus-Hatch letter “treats decisions about revenue as an afterthought.” Yet revenue-raising is THE PRIMARY REASON WE HAVE TAXES.

Congress should not be engaging in protracted tax reform negotiations that ignore the fundamental problem with our tax code: It does not raise sufficient revenue to fund the operations of government at appropriate levels in a sustainable way.

If Baucus and Hatch are interested in reforming tax expenditures, they should start by scaling back the biggest giveaways to corporations and the rich and devoting that revenue to repealing the sequester, not reducing tax rates for these same corporations and wealthy individuals.

Richards is right on in her critique. We need to recognize the commitments we have to institutions and people, from infrastructure needs like roads and airports to wildfire prevention to climate change action to NIH and other support for basic scientific research on which rests most of the “entrepreneurial” innovations that the self-appointed meritocracy credits itself with. That requires money, and money requires either printing more of it or more taxes. More taxes from the wealthiest corporations and individuals also serves a secondary objective of increasing expanding opportunity and countering, to some small degree, the tendency for most government programs to function as upwards-redistribution paradigms that shift more and more resources to an oligarchic upper crust.

So I cannot think this Baucus-Hatch initiative augers well for the country. I wish Baucus had used his imminent retirement to step back and consider what his legacy could be for a better world, rather than continuing to lie in bed with the lobbyists of the corporate elite. What we need to do first is very simple–get rid of the multiple giveaways to big corporations, revamp the estate tax to make it heftier, and eliminate the many tax expenditures that are mainly for the wealthy (deductions of mortgage interest on second homes, deferred compensation schemes, etc.

Related articles

Orrin Hatch on tax reform at the ABA–a predictable right-wing rant

Why We Should Be Wary Of ‘Blank Slate’ Tax Reform

Why ‘Blank Slate’ Tax Reform Is A Bad Idea

Senate Invitation to Defend Tax Breaks Propels

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