The Path to Tax Reform Involves Congress Doing Nothing
Much to the surprise of Washington elites, earlier this month Americans sent a decisive message to our nation's leaders that they do not like politically connected interests getting all of the advantages. Many have a lingering sense of fatigue when it comes to the surreptitious deals that happen in Congress without their knowledge or consent - often to the benefit of Washington's favored groups.
This holiday season, Congress can put a stop to these types of special deals in the tax code. And the best part is that Congress can root out a handful of them by doing absolutely nothing.
By taking off the negotiating table a set of tax measures that provide targeted help for a favored few, Congress can easily advance the case for comprehensive tax reform, which would lead to a simpler and fairer system. These "tax expenditures" - a term that represents exceptions in the tax code - include breaks for the film and TV industries, racetrack owners, rum producers, and even racehorse owners.
Last year, Congress brushed several tax handouts aside by extending them for only one year, while other tax measures received permanent or longer-term authorizations. If Congress does nothing this December, then these temporary provisions will simply expire. We can all say good riddance to a set of tax carve-outs that benefit a small yet powerful set of lobbyists and special interest groups whose job it is to rig the system to help a select few at everyone else's expense.
Though the idea of letting something expire seems simple enough, as with any type of reform in Washington, pulling it off could be more difficult than some might expect. Many lobbyists, eyeing year-end bonuses, are already asking friends in Congress for just one more favor - often hoping their wish lists will remain hidden from public view.
Last year, for example, the tax extenders package was tucked into the incomprehensible 888-page omnibus. The year-end government funding effort, whether it culminates in an omnibus or a shorter stopgap measure, is often so opaque that even many members of Congress vote on the bills without actually knowing what is inside. Most taxpayers are even less familiar with the process - a fact not lost on Washington's well-connected.
Though some may argue that the cost of slipping last-minute tax favors to these select few is negligible compared to our almost $20 trillion national debt, the reality is that such measures carry a serious cost to our overall economic well-being. Specifically, targeted tax breaks add even more uncertainty and complexity to the tax code and make filing returns more expensive for individuals and businesses. Already, the code and its explanatory regulations runs 75,000 pages long. The almost 200 tax expenditures contained therein are a major reason why.
Tax extenders also create a number of unseen economic distortions. When government directs the allocation of capital, it routinely encourages more activity than would normally occur in a competitive market. Thus, rather than promoting fair and equal competition, these tax breaks result in special advantages for government-favored industries. Of course, when the government bets wrong, the economic consequences for ordinary Americans can be devastating. One need only study the recent housing market crisis or the failures of businesses like Solyndra to understand the problems government creates when it tries to pick the next winning investment.
Finally, and perhaps most important, these special carve-outs throw a wrench in our ability to address larger tax reform. Too many people with vested interests like the tax code just the way it is. If Congress can't take a first step in eliminating unfair tax breaks, how will it have the courage to address long-overdue comprehensive tax reform that applies the code fairly to all?
In recent years, many well-connected industries have stamped their influence on the laws Congress writes. This December, Congress has a golden opportunity to change the way business is done. It's time to finally put ordinary Americans' best interests above those of special interest lobbyists. It's time to start rooting out corporate welfare. It's time to clean up the code.