Tax Cuts: a Wealth of Waste

The House Republican tax proposal winding its way through Congress toward a well-deserved presidential veto would bestow only about $100 a year in tax savings on the average family. The Senate version isn’t much better. But what both contain is tens of billions of dollars in direct tax cuts for businesses. Most of those cuts, one independent analysis says, “are at best pure waste, and even worse, can sometimes cause perverse economic effects.”

Congressional sources estimate that more than $100 billion of the tax breaks in the House bill and $75 billion in the Senate version would benefit industry, including some of the most profitable companies in the country, over the next 10 years. Multinationals, financial institutions, oil and gas companies and the timber industry, all generous campaign contributors, would benefit the most. Oil and gas companies, for example, which contributed three-quarters of their campaign dollars to Republicans last year, according to the nonpartisan Center for Responsive Politics, would reap $5.5 billion.

Tax breaks, as the independent Citizens for Tax Justice concludes, tend to reward those with the most lobbying muscle in Washington. And that muscle has grown into a $1.4-billion industry with an army of more than 20,000 registered lobbyists. That’s roughly 37 lobbyists and $2.6 million per member of Congress.

It appears to be money well spent. Multinational companies would receive more than $48 billion in tax breaks under the House version and some $26 billion under the Senate bill. They would be allowed to allot worldwide interest payment deductions so as to earn an extra tax credit in the United States. Capital gains tax cuts in the House bill would give financial institutions an $8-billion tax break. Railroads wouldn’t have to pay taxes on diesel fuel, timber companies would be allowed to write off the cost of replanting trees and small businesses would be able to deduct most of the cost of their two-martini lunches. Buried somewhere in the voluminous tax bills are tax relief for power plants burning chicken manure, a deduction of Eskimo communities’ spending on the ritual slaughter of bowhead whales and a tax credit on yacht purchases.

The cost of corporate welfare in dollars and cents can be calculated. The cost in the loss of taxpayers’ confidence in the increasingly convoluted U.S. tax law cannot. Few, if any, of the tax breaks can be economically justified. Rewarding, as they often do, activity the beneficiary companies would conduct anyway and distorting private economic choices, the breaks are a waste of resources.

That’s yet another reason why the House and Senate Republican tax proposals should be vetoed.