Government: Tax Reform
Commentary: Corporate Welfare: The Sound Bite and the Fury
Weeks before the Jan. 24 Iowa caucuses, Campaign 2000's Presidential mavericks are launching nearly simultaneous attacks on "corporate welfare." On Jan. 4, Democrat Bill Bradley unveiled a $125 billion hit list of unneeded business breaks. On Jan. 11, Republican John McCain was expected to follow suit, outlining his own plan to go after at least $30 billion in business pork.
By playing to their parties' populist constituencies, Bradley and McCain are proving once again that zinging Big Business can be a surefire vote-getter. Still, the duo may be onto something: Both the tax code and the federal budget are full of inefficient special-interest subsidies. Trouble is, releasing hit lists and promising to attack only corporate preferences isn't the smartest way to get rid of them.
Back in 1986, then-Senator Bradley had one of his famous Big Ideas. He proposed dumping many of the breaks that festooned the tax code and using the savings to lower rates. It worked. The political system accepted the trade-off, and, for a while, reformers managed to clean up the tax laws a bit.
The key was that CEOs weren't just asked to give at the office. Both individuals and entire industries got something tangible out of a flatter rate structure.
There is no such trade-off in either Bradley's or McCain's new blueprint since both insist that another run at broad tax reform isn't in the offing. Bradley feels that near-universal health insurance should come first. McCain says that until the grip of the special interests is broken with campaign-finance reform, it will be impossible to clean up the tax code.
So why go off on an anti-corpocracy crusade? For Bradley, the reason is simple. He has a $600 billion-to-$1.3 trillion national health plan on the table that is being attacked as a budget-buster by Vice-President Al Gore. By cutting corporate tax shelters by about $100 billion, targeted tax breaks by some $23 billion, and spending subsidies by $2 billion--all over 10 years--he replenishes the federal coffers depleted by his health plan. The result, however, is more of a budget gimmick than a coherent tax strategy, especially since Bradley knows that even a Democratic Congress is unlikely to trash breaks for timber, oil-and-gas drillers, and multinationals.
To underscore just how political this is, Bradley omits one of the most controversial tax breaks from his List of Doom--the ethanol subsidy that is backed with religious fervor by the farmers and farm interests of Iowa.
McCain, who is bypassing Iowa in favor of the Feb. 1 New Hampshire primary, did put ethanol on his hit list. But mixing both tax subsidies and traditional pork-barrel spending into the same category is a stretch. He links business campaign contributions to preferential treatment by Congress and argues that special-interest jockeying is obscene. But he is less outraged when the log-rolling is practiced by Internet businesses trying to avoid collecting sales taxes.PROGRESS. Does this mean that the dynamic duo is misguided? Not at all. Bradley's plan identifies wasteful preferences and embodies some good ideas. The best: Require companies to explain the difference between the income they report to shareholders and what they file with the Internal Revenue Service.
Actually, there is some real progress being made in the courts against egregious corporate tax-avoidance schemes. But asking Congress to close down shelters is just another way to perpetuate the endless game that goes on between Washington and financial promoters.
The Bradley who gave us Bradley-Gephardt tax reform had the right idea. The best way to close down abusive shelters is to sharply lower rates. Most of these loopholes are created three ways: by turning ordinary income into capital gains, by playing timing games with depreciation, and by taking advantage of differences between U.S. tax rates and those of foreign countries where U.S. multinationals do business.
Real tax reform would go to the heart of this scam, but then, it might not make the nightly news.By Howard Gleckman; Gleckman Covers Tax Policy from Washington.