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Special interests win the day on tax-break extensions

By Editorial Board,August 03, 2012

“GRANT ME chastity and continence,” St. Augustine famously prayed as a youth. “But not yet.” That same sentiment seems to have governed the Senate Finance Committee’s deliberations this week as the panel went through the annual exercise of extending special-interest tax breaks that clutter the Internal Revenue Code. One after another, members of the committee professed their belief in tax reform, proclaimed that Congress must achieve it soon — and then explained why it would be unfair to give up this or that provision favoring their constituents until the blessed day arrives.

This was a bipartisan game. Sens. Debbie Stabenow, a Michigan Democrat, and Jon Kyl, an Arizona Republican, piped up to protect, for another two years, an accelerated write-off for NASCAR racetracks. Cost: $78 million over 10 years. “Big tax reform is where we need to look at all this stuff,” Ms. Stabenow said. Meanwhile, “an economic development issue for Michigan” is more important.

Sen. Charles E. Grassley (R-Iowa) declared that “Congress and the president need to take up tax reform to make American business more competitive with lower rates, a broader tax base and a simpler code.” But, Mr. Grassley added, it’s still urgent to extend the tax credit for wind electricity production by one year, at a 10-year cost of $12.1 billion, because, “until tax reform is undertaken, workers and employers need certainty in existing tax law.” And Iowans need to continue deriving jobs and profits from the wind farms dotting their landscape.

All told, the committee preserved tax breaks worth $40 billion over the next decade. To be sure, this represents a tiny fraction of the total cost that tax expenditures impose on the federal budget. By far the most expensive and widely used provisions are the exclusion for employer-paid health insurance, which cost $109.3 billion in 2011, according to the Joint Committee on Taxation, and the mortgage interest deduction for owner-occupied houses, a $77.6 billion item. And the committee does deserve praise for eliminating about 20 of the 75 provisions that came before it. This was an improvement on previous years’ “tax extender” bills.

Of course, the whole idea of industry-specific tax breaks that need to be extended every year seems more like a full-employment plan for lobbyists than a means of ensuring “certainty” for employers, but that’s another issue.

For now it’s enough to observe that the tax code desperately needs an overhaul, one that would lower rates while broadening the base of taxable income. But Congress may never get there until each member runs out of reasons that he or she shouldn’t have to make the first move.