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Taxes, or Spending? Budget Fight in Congress Focuses on a Distinction

March 17, 2013 by Leave a Comment

The Bozeman project relied on tax credits, while New Orleans is using federal grant money. To economists — and to taxpayers — that makes no real difference. “These are at some point arbitrary distinctions between taxes and spending,” said Donald Marron, the director of the Tax Policy Center, a nonpartisan Washington research group.

But to Congress, it makes all the difference — and is something worth fighting over. As lawmakers struggle to narrow the government’s deficit, every dollar taken away from the block grant program used in New Orleans counts as a budget cut. Every dollar taken away from the Bozeman tax credit program — part of a vast array of so-called tax expenditures that cost the federal government more than $1 trillion in lost revenue every year — counts instead as a tax increase.

In budget proposals put forward last week, both Democrats and Republicans called for scrubbing billions of dollars’ worth of the popular deductions, loopholes, preferential rates and credits that litter the tax code, mostly benefit higher-income taxpayers and often reflect undue government interference in economic decisions. But the two sides are sharply divided what should happen to any revenue raised.

Senator Patty Murray of Washington State, the shepherd of the Senate Democratic budget proposal, proposed raising nearly $1 trillion in new revenue over the next 10 years by cutting tax expenditures and using the money to reduce the deficit. The White House has said it supports her plan.

“We don’t often think of tax expenditures as a form of spending,” Senator Murray said at a hearing this month. But, she said, “they require us to make the same kinds of trade-offs that other forms of government spending would, and lots of them.”

In contrast, Representative Paul D. Ryan of Wisconsin, in the House Republican budget, insisted that any money generated from curbing tax expenditures must be offset with lower tax rates, so that overall revenue remained the same. Republicans on the Senate Budget Committee echoed that argument. “Eliminating tax exemptions is a tax increase,” said Senator Jeff Sessions of Alabama. “You can’t spin it any other way.”

At the root of the bitter semantic back-and-forth is a simple truth: every tax expenditure — and there are scores of them, used to encourage employers to provide their workers with health care, to make houses more energy-efficient, to aid timber cutters and much more — benefits a certain group of taxpayers or a specific industry. And nobody wants to give up anything.

For instance, as part of the January deal to avoid the so-called fiscal cliff, stock car racetrack owners managed to secure an extension of a tax break that lets them write off investments in their properties more quickly. That break — as lobbied for by Nascar fans — will cost the government about $80 million over the next 10 years.

In the corporate code, expenditures are “just a hidden, ersatz, Soviet-style five-year plan,” said Edward Kleinbard, a longtime Congressional tax expert now at the University of Southern California. “We would never contemplate a world in which the government said, ‘We’re going to write out checks to Nascar because it’s an important resource and we’re going to pay for it!’ People would say, ‘They’re out of their mind!’ ”

Tax expenditures also make it harder to gauge the impact of the federal budget on such crucial activities as housing and retirement security. For instance, the home mortgage interest deduction costs the Treasury about $100 billion a year in lost revenue, and effectively encourages the mostly affluent families who itemize deductions to buy a more expensive home. In contrast, the annual budget of the Housing and Urban Development Department, which generally goes to aiding the poor, is less than $50 billion.

“If someone said, ‘Let’s have a voucher program on the spending side, giving high-income families vouchers to subsidize their mortgages,’ ” said Glenn Hubbard, the dean of Columbia Business School and a prominent Republican economist, referring to the home mortgage interest deduction, “I don’t think that would get through Congress.”

Article source: http://www.nytimes.com/2013/03/18/business/economy/taxes-or-spending-budget-fight-in-congress-focuses-on-a-distinction.html?partner=rss&emc=rss

Filed Under: Economy News Tagged With: , ,

Chamber Competes to Be Heard in Fiscal Debate

November 29, 2012 by Leave a Comment

But Mr. Obama’s top advisers were not budging. There would be no deal on the federal budget deficit, they told chamber executives, without higher taxes, participants said. If there were doubts about the White House’s resolve, Mr. Obama met the chamber’s chief executive afterward for an unscheduled Oval Office chat about the showdown.

For the United States Chamber of Commerce, long the leading business voice in Washington, this month’s negotiations over the nation’s debt will be a key test of whether it can retain its influence and swagger in the capital even after a string of bruising political losses.

Many business leaders are looking to the chamber as a bulwark against the White House’s push for higher taxes, but it is unclear if the century-old association has the clout it once did. Other business groups seen as more open to tax increases have become players in the negotiations, exposing rifts in the private sector.

The Chamber of Commerce, in the biggest voter mobilization effort in its history, spent tens of millions of dollars in support of pro-business candidates, usually Republicans, in the Nov. 6 elections. But the results were disastrous: out of 48 House and Senate candidates that it spent money to try to either elect or defeat, the outcome went the chamber’s way only seven times, according to data from the Center for Responsive Politics, a Washington research group that tracks political spending.

If the chamber was an 800-pound gorilla before the elections, “now they’re a wounded 500-pound gorilla,” said Cyrus Mehri, a Washington lawyer for U.S. Chamber Watch, a union-backed group that is critical of the chamber’s political practices.

“But they’re still a major force to be reckoned with,” he added.

As the White House looks to work out a deal with Congress to avert hundreds of billions of dollars in automatic budget cuts at the end of the year, Mr. Obama and his top economic advisers have been meeting through the week with business leaders to push their plan for raising taxes on the wealthiest Americans.

Mr. Obama met Wednesday with chief executives from Goldman Sachs, Coca-Cola, Yahoo and other prominent firms, and he met a day earlier with small-business representatives.

The president’s advisers also met with officials from the Campaign to Fix the Debt, a centrist group that has become influential in pushing for a combination of tax increases and spending cuts. It is led by Erskine B. Bowles, a former Clinton administration official, and Alan K. Simpson, a former Republican senator from Wyoming.

When Mr. Obama met two weeks ago with a dozen corporate leaders but did not invite the Chamber of Commerce, it was widely seen as a snub of the group over its political attacks during the presidential campaign. But the chamber got its turn Monday.

Jack Lew, the White House chief of staff, and other senior economic advisers listened as chamber executives, including Thomas J. Donohue, the group’s president, and Bruce Josten, its top lobbyist, laid out their ideas for raising significant revenue without necessarily raising taxes by expanding energy development.

“They wrote it down, but where that goes, I don’t know,” Mr. Josten said in an interview.

But Mr. Josten said that the White House advisers stressed that any debt deal would have to include increased taxes at the highest brackets and that if an agreement could not be reached, they were willing to risk the automatic spending cuts — the so-called fiscal cliff option — at the end of the year.

“They reiterated that they want the higher rates, and they’ll go over the cliff if they need to,” Mr. Josten said.

Article source: http://www.nytimes.com/2012/11/30/business/chamber-competes-to-be-heard-in-fiscal-debate.html?partner=rss&emc=rss

Filed Under: Business News Tagged With: , ,

Economix: A Targeted Payroll-Tax Cut

June 15, 2011 by Leave a Comment

One of the most successful stimulus programs of the last few years has been the cash-for-clunkers program. In it, the government gave $3,500 to $4,500 to people who traded in an old car for a new one that got more miles to the gallon. If you didn’t buy a car — helping the economy in the process — you didn’t get the money.

In my column Wednesday morning, I argued for a similar approach for a new payroll-tax cut for businesses. Rather than giving a tax cut to all businesses, as the White House seems to be mulling (though the details are unclear), a targeted tax cut would reward only those business that added to their payroll. This approach does less to increase the deficit and yet could do more to promote hiring.

Michael Greenstone — an M.I.T. economist who runs the Hamilton Project, a Washington research group, and a former Obama administration official — wrote me an e-mail Wednesday morning making a more detailed argument for a targeted payroll-tax cut for businesses. It’s worth reprinting:

A better policy would be one that cuts payroll taxes for firms’ employment expansions. For example, this could be a tax credit based on total payroll exceeding last year’s payroll, some average over the last several years, or an even more complicated approach. And, one could add the condition that all hires by new firms would be eligible for the credit. Of course, there will be gaming but this will still be more efficient than the subsidization of existing employment as in an across-the-board cut (i.e., neither M.I.T. nor I should receive a credit for my continuing employment).

A targeted payroll tax cut could stop the structural unemployment rate from increasing. Specifically the longer the high levels of unemployment persist, the more likely it is that people will become permanently disconnected from the labor force, thereby raising our structural unemployment rate. At a time when we already must grapple with the high levels of debt and the long-run decline in real wages for many Americans, we should try to avoid adding to the list of our long run economic challenges….

At the same time, it is important to make a targeted payroll tax cut part of a broader package that includes deficit cuts that begin to take hold in a few years. Without this pairing, there is a real risk that financial markets will view a payroll tax cut only as a continuation of the “tomorrow” approach to dealing with the deficit.

I prefer a simple approach: Businesses would not have to pay any payroll taxes on net new employees for a few years. The policy could be backdated to June 1, so companies would not wait to hire before Congress passes the bill.

Article source: http://feeds.nytimes.com/click.phdo?i=e9dbf47d9c62d7861a6362e9e2a35e5c

Filed Under: Economy News Tagged With: , ,