Look deep amid the rubble of last week’s fiscal cliff compromise, and you’ll find the foundations of the next cliff.
While our economy teetered on the brink, while the world watched in worry, our lawmakers somehow managed to find time to salt this most desperate of last-ditch measures with the weeds that continue to rot our fiscal policy.
The bill passed last week avoided mandatory income tax hikes on most Americans, and it raised about $600 billion in new revenue, primarily by increasing tax rates on people with incomes above $400,000 a year.
Yet it is also chock-full of the financial gimmes in which Congress loves to traffic.
An extension of the tax credits for wind farms here, a reinstatement of the tax credit for biofuels there, and handouts all around for railroads, movie producers, Puerto Rican rum makers and even businesses in American Samoa – namely, tuna giant Starkist, whose fleet is based there.
In all, these measures shaved more than $46 billion from the revenue that would have been raised over 10 years had they not been added to the bill.
It’s chump change in the battle against the deficit. In fact, all the handouts in the fiscal cliff bill are as irrelevant to cutting the deficit as slashing funding for the Public Broadcasting System, which Republican challenger Mitt Romney proposed during the presidential campaign.
Even if you lump them in with all other discretionary spending, they still account for just 19 percent of federal outlays, a smaller piece than the 20 percent for defense and 55 percent for and Social Security and Medicare. (The remaining 6 percent is interest on the debt.)
So from a dollar standpoint, a $250-million kiss to Hollywood, a $43 million helping hand for NASCAR track owners or a not-so-sorry $62 million gift to Charlie the Tuna isn’t worth getting upset over.
Yet what we see in these provisions is a reflection of the far larger problem that Congress now faces.
Giving away money
Too much of the tax code has become a convenient financing tool for corporate welfare. Lawmakers can promise these breaks to companies and their lobbyists because offering tax credits is painless. It doesn’t cost anything. It’s simply giving away money that hasn’t arrived yet.
“There’s a lot of spending through the tax code,” said John Diamond, a tax expert and a fellow in public finance at Rice University’s James A. Baker III Institute for Public Policy. “The tax code is used for a lot of different purposes – supporting various different industries, or just vote-getting. People come in with ideas that are good for their bottom line.”
In reviewing the list of gimmes in the fiscal cliff bill, it’s easy to shake our heads. Do railroads really need a $330 million tax break for track repairs? Do we need to give an incentive to mining companies to buy safety equipment and train their workers? Shouldn’t these be a cost of doing business?
One person’s tax relief, of course, is another’s wasteful spending. Many in the oil industry extol the virtues of a tax allowance for depletion of reserves, yet deride tax breaks for wind farms and biofuels.
Corporations aren’t alone in these expectations. Individual taxpayers have grown used to them, too. Congress has conditioned us to expect programs that are paid for through the tax code, whether it’s credits for child care or higher education or deductions for mortgage interest.
Eliminating these gimmes alone won’t fix the deficit problem. To do that, lawmakers will have to take serious aim at Social Security and Medicare, the biggest slice of government spending.
But attacking the deficit is only part of the tall order Congress faces this year. Reforming the tax code also needs to be a part of the process, and to do that, lawmakers must take a hard look at how they fund programs. Rather than pledge against future revenue the government doesn’t yet have, lawmakers should force themselves to pay for these programs.
Perhaps Puerto Rican rum producers deserve the government’s largesse, which, by the way, they have received since 1917. Perhaps we should spend $1 million to designate coal from Indian lands as an alternative fuel or offer subsidies for plug-in electric scooters. If so, then the government’s support should stand on its own merits, and the lawmakers who back it should explain how it will be paid for and why one program is more beneficial than another one that we may then not be able to afford.
Congress needs to do more than cut spending. It needs to change its collective thinking about how it spends.
Otherwise, all we’ve done is avoid one fiscal cliff so that we can immediately begin building another one.