What Do We Need? “No Loopholes!” When Do We Need It? “Now!” (Chant After Me)

The so-called “fiscal cliff deal” was, like every other revenue bill passed by Congress, larded up with special interest payoffs (subsidies for NASCAR track builders? WTF?). In fact, the majority of the federal tax code is made up of these special deals for various and sundry industries.

The domestic oil industry was given such a deal in the early 1900’s for reasons, I am sure, all thought were good at the time (the industry was only a few decades old, after all). That special deal for conditions that existed over 100 years ago is still in place and it added $8,000,000,000 last year to those company’s bottom lines, companies which are some of the nation’s most profitable companies. The money, as conservatives are wont to point out, was borrowed from China.

And this points out why tax deals are bad government. They almost never go away, they just pile up. Ronald Reagan cut a deal to eliminate many of these “tax loopholes” in a noted tax reform effort. The deal was the industries gave up many of their loopholes for lower overall tax rates. They went along with the deal because as soon as the ink was dry on it, those same industries started creating new loopholes in the tax code they could take advantage of with the help of lobbyists and strategically bribed Congress people. So, they got their lower rates and their tax deals, too. (This was part of the huge tax shift away from corporations and onto individuals, but that is another story.)

Lobbyists, a recent analysis shows, return $22 for every dollar spent upon them, a 2200% return on investment. Consider that a company that shows a 25% ROI to it’s shareholders is considered a skyrocket, a darling of Wall Street, and will have numerous articles written about it in the business mags. A 2200% ROI is monstrous! Is it no wonder that Washington, D.C. is overflowing with lobbyists? Of course, the captains of industry have been hiring more and more lobbyists to craft tax breaks for them; the benefits are better than any other activity they participate in. This is also why many of the largest corporations in the U.S. pay no corporate taxes.

This needs to stop. Now.

There should be no tax loopholes. None. Not for anybody. Not the poor. Not the ASPCA. Not for veterans. Not for home mortgages. They are bad government. For one, once put in place, they almost never go away. Even if they are “sunshined,” some compliant legislator will make sure a rider is attached to a bill the re-ups their benefit quietly and with no fanfare. Secondly, they are almost invisible. When was the last time you looked through the federal tax code for advantages these companies have? Even if you did look, would you understand what you were reading?

And for backers of the home mortgage “deduction” (loophole!) realize that this is not a net benefit to the individuals involved. All the deduction does is support higher housing costs. Have you never heard a mortgage broker include your tax savings when they were discussing whether you could afford a property? Without it, you couldn’t afford such an expensive house and the prices on those houses would fall. (It is called supply and demand.) It doesn’t have to go away immediately, it can be phased out, but go away it should. Basically all it does is support higher commissions for real estate agents and brokers.

I am for a simple progressive tax code, for individuals and for businesses. Yes, for businesses, too. Why should small startup companies pay the same rates as large multi-nationals. The bigger companies have economies of scale the smaller ones do not, so they should pay a higher rate, just as those individuals who can afford to pay more do so on that side of the tax ledger.

So, how then does government provide incentives for things it wants? For clean energy? For innovative technologies? For new industries? For veterans? The same way it subsidizes academic research, through direct grants. If some researcher wants to conduct some experiments that will benefit the public, they write a proposal stating what they need, why they need it, and what they hope to prove. If the money is granted, then the researcher is obligated to report the results of his efforts honestly. The penalty for hanky-panky? They are cut off from future funds.

Veterans could still have benefits by direct provision, like as access to VA health care facilities, etc. But they must be direct, not through the tax code.

Now I know what you are thinking. All of these corporations will lay off their small armies of tax lawyers and lobbyists and hire small armies of grant writers who specialize in writing enticing grant proposals. I say “fine.” They still have to do the work, or whatever, and report on their success or failure. The money granted would not be automatically regranted year after year with no attention given to it. And the key thing is that all of this would be part of the public record. People could see who got money and what they got it for, so they could assess the functioning of the government. If companies are afraid to expose proprietary processes, they will have to do the work on their own dime. Government grants are for things that benefit the public and not just the companies.

Yes, there would be a bureaucracy needed to handle the money. And, yes, Congress would have to allocated the funds, apportioned to certain areas. But Congress would not be in the business of awarding grants, they would supply the funds and write the priorities for giving grants, like all other granting agencies do. And this bureaucracy would not be just added on top of the existing federal bureaucracy; it would replace all of the IRS employees no longer needed to process immensely complicated corporate tax returns. And it would be more open and more honest.

Currently, Congressional Republicans are crying “Crisis, Danger, Will Robinson, Danger! We Have a Spending Problem!” but will not cut a single bit of this corporate welfare and are willing to add even more. Under this new system, they would have to budget for these government supported grants every year (better for every two year Congressional session to encourage longer term thinking) and be able to justify the allocation of those corporate support funds along with their claims that we are spending too much (oh but General Electric really needs a grant to study light bulbs or whatever).

Chant After Me . . . What Do We Need? “No Loopholes!” When Do We Need It? “Now!”

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