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April 03, 2008

The two chief Senate taxwriters yesterday took another small step in their continuing campaign to run the world through the tax code. The Tax Prof reports they are introducing a bill with four new tax breaks:

* Standard Property Tax Deduction: $500 for single filers and $1,000 for joint filers who do not itemize their deductions.

* Mortgage Revenue Bonds: $10 billion of Federal tax-exempt private activity bond authority, with the interest earned on the bonds exempt from the AMT.

* Extension of Net Operating Loss Carryback: For 2008 and 2009 losses, extend NOL carrybacks to four years (rather than two years under existing law).

* Tax Credit for Purchase of Homes in Foreclosure: $7,000 tax credit for buyers of homes in foreclosure.

That's just great. They've done such a wonderful job with the tax laws relating to housing, but they think they can make things even better! It's not enough that home ownership is already heavily subsidized by the tax law and that the housing industry is favored with special tax breaks and subsidized financing. Now they want to give people checks to buy foreclosed houses.

Meanwhile, the presidential candidates are at it:

Democratic Presidential candidate Hillary Clinton yesterday unveiled an Insourcing Plan that includes a number of tax incentives designed to spur job creation:

* Increase the R&D credit by 50% (from 20% to 30%) and increase the Alternative Simplified Credit by 67% (from 12% to 20%).

* Create a 40% Basic Research Credit.

* Create a 10% Start Up Research Jobs Credit.

* Create a new $5 billion Insourcing Markets Tax Credit.

* Close loopholes that encourage companies to ship jobs overseas:

o Eliminate deferral provision that allows U.S. companies to defer paying U.S. taxes on income earned by their foreign subsidiaries until that income is repatriated to the U.S.

o Close tax loopholes to ensure that companies cannot continue receiving tax benefits for locating abroad. She will disallow companies from engaging in transfer-pricing arrangements where companies avoid taxes by shifting income or assets to low-tax jurisdictions. She will eliminate incentives in the tax code (like the ability to “cross-credit”) that encourage U.S. companies to shift operations or at least profits to low-tax jurisdictions. And she will eliminate the unfair advantage that foreign insurers located in tax havens have against U.S. insurers competing for U.S. business.

I'll say it: the research credit is a boondoggle. Companies don't do more research to get more research credits. They do more research to make better stuff to sell, to make money. Higher research credits just spur companies to call more of the stuff they do anyway "research" so they can claim more tax credits.

All of these credits and tax breaks imply that the Senate is a sort of giant Star-Trek control room where 100 super-geniuses can turn dials, pull levers and throw switches to make the economy do their bidding. No 100 people are smart enough to run an economy. Especially Senators. Most of us wouldn't trust these people to watch our kids for 20 minutes.

The best thing these people could do would be to get out of the way -- get rid of all of their stupid finely-tuned tax incentives, lower the rates, and let people get about their business. If they want to have an illusion of control, we can find them a nice video game.

Besides, how can any of this stuff work when taxes are voluntary, like the Senate Majority Leader says?

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