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KATRINA AND TAX POLICY

September 06, 2005

Hurricane Katrina is an overwhelming event. We shouldn't be surprised that people who make a living doing tax policy see tax policy lessons in the disaster. And we should never underestimate the ability of a disaster to cause muddled thinking.

The past week has seen some odd statements on the estate tax. An estate tax repeal vote had been slated for this week, though a delay seems likely now. Grover Norquist, the dodgy disciple of estate tax repeal, waded in with:

The 2003 tax cut lifted economic growth far beyond what most people expected. We know repeal of the Death Tax will also have a similar effect. And higher levels of economic growth is exactly what the residents of the Gulf Region need at this time to start the rebuilding process for their neighborhoods and more importantly for their lives.

Meanwhile, Stuart Levine at Tax and Business Law Commentary says

The estate tax repeal is dead because suddenly Americans have suddenly awoken to the reality that government and taxes are necessary and that there's no free lunch.

In real life, of course, a hurricane should have no bearing on the proper means of financing government activity. No serious person should argue that a repeal of the estate tax would mean much to the devastated region. Nor should any serious person say that Katrina shows that the government lacks the resources to do what it should do, in the wake of last's months obscenely-bloated highway bill. And the estate tax repeal was dead before Katrina, for various reasons having nothing to do with broken levees.

Maybe Katrina changes everything. Maybe Congress will repeal the $380 billion pork-barrel highway bill and reconsider whether those resources would be better spent dealing with the lower Mississippi flood issues that have been accumulating for over a hundred years. Maybe people will focus on what the priorities of the government should be, and stand up against $223 million bridges from Nowhere, Alaska to Oblivion, Alaska, to ensure that the money goes to more pressing long-term needs. And maybe this thoughtful discussion will be matched by a careful consideration of the way to structure a tax system that will meet those needs. And that free bubble-ubb will taste delicious.

In the real world, expect Katrina to move politicians to pass misguided tax breaks and establish big new bureaucracies to manage the big bureaucracies that were found wanting last week. And in two years another big bloated highway bill will pass, and politicians will praise the bill for its new highways while more urgent but less sexy infrastructure is neglected.

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