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THINGS THAT DRIVE TAX POLICY WATCHERS TO DRINK

February 27, 2008

A Tax Analysts story ($link) is enough to make me want to fortify my morning coffee:

In a widely expected move, the White House on February 26 threatened to veto a House proposal providing over $18 billion in tax incentives for renewable energy production, objecting to provisions that would roll back subsidies for oil and gas companies.

In a statement of administration policy, the Office of Management and Budget said the House bill "would use the tax code to target tax increases on a specific industry in a way that will lead to higher energy costs to U.S. consumers and businesses."

In a better world, the President would say "I am vetoing this bill because politicians are about as likely to make the best energy choices for the nation as Brittany Spears is to make the best lifestyle choices for America."

In a better world, Congress would not be repealing Sec. 199 for the oil industry. They would be repealing it for everybody and lowering rates. The sponsor would say "It was a foolish mistake for us to pass Section 199, which gives special treatment to manufacturing, construction, and architects, and farmers, in the first place. A modern economy uses all of these in ways too complex for politicians to begin to grasp, let alone manipulate with the ham-fisted tools of the tax law."

Instead, Congress is trying to repeal Section 199 only for the oil industry while passing a passel of subsidies for their well-lobbied friends in agribusiness. Sure, Section 199 is foolish, but taking it from the oil industry in the name of energy security is, well, irrational. And the President opposes only one of the foolish parts of the plan.

THE AUDACITY OF FAVORS

If you have great hope for better tax policy from the next president, well, there's always 2012:

Sen. Barack Obama's presidential campaign has accepted $54,350 from members of a law firm that in 2006 lobbied him to introduce a tax provision for a Japanese drug company with operations in Illinois, according to public records and interviews. The government estimates the provision, which became law in December 2006, will cost the treasury $800,000.

Of course, it's not just Obama:

In 2002, Sen. Hillary Rodham Clinton introduced legislation at the request of Rienzi & Sons, a Queens, N.Y., food importer, according to company president Michael Rienzi. The provision, which became law in December 2004, required the government to refund tens of thousands of dollars in duty charged on imported tomato products, Rienzi told USA TODAY.

The story doesn't mention Senator McCain, but he's a Senator like the others, so we'll probably see more about him too.

The only real policy solution to this stuff is low rates and few exemptions. As rates come down, the incentive to lobby for exemptions goes down, and with fewer exemptions, you can lower the rates. It would also help if people realize that a tax break that goes for a narrow interest is a tax increase for everyone else. The grim reality of our present, and likely future, tax policy makes me contemplate a three-martini breakfast.

Tags: tax policy.

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