If It Ain’t Broke, Give It a (Tax) Break

One of the things we Bush haters like to say to each other, over lattes with NPR in the background, is that the current president makes us nostalgic for George H.W. Bush, Ronald Reagan and Richard Nixon. Non-Bush haters have trouble understanding this point. Is this GOP president really that much more conservative than other GOP presidents? Well, yes, he is. But the main problem is less his conservative principles than the frequent absence of any ideological principles whatsoever.

One telling episode began last year, when, because of a World Trade Organization ruling, Congress had to eliminate a $5-billion-a-year export subsidy. The obvious thing to do was pocket the $5 billion and make a dent in our quite large budget deficit. Of course, the GOP-controlled Congress decided instead that every dollar saved would be devoted to tax cuts. And because the newfound money would come from corporate America, it would be returned to corporate America.

Now, if it did make sense to provide a tax cut to corporate America, the logical course of action would be to make it a broad-based tax cut. So of course Congress avoided that. Instead, it decided to offer narrow tax breaks to manufacturers, on the grounds that manufacturing has faced hard times. Thus Congress violated a maxim of conservative and liberal economists alike, which holds that the tax code should not favor one kind of income over another.

Why? First, markets are more efficient than lawmakers at deciding whether resources should be allocated to building cars or to writing software. The fact that manufacturing is in trouble sounds like a compelling exception, until you realize that politicians can (and do) make an equally compelling case to favor industries that are doing well. A few years ago, Congress exempted online purchases from sales tax -- on the grounds that booming Internet commerce represented the wave of the future. Neither kind of favoritism makes economic sense.


Second, when the government favors one activity over another, it invariably creates a huge incentive to monkey with the definition of that activity. If manufacturing gets a lower tax rate, then the goal is to be legally defined as a manufacturer. That’s exactly what happened. Lobbyists for agriculture, construction, recording and many other industries successfully began lobbying Congress to be reclassified as manufacturers.

In due course, the pretense of only aiding manufacturing was dropped. The bill -- which has now passed both the House and the Senate -- became a free-for-all for Congress to reward specific constituents. One provision, which employs the legislative habit of pretending that a bill doesn’t single out beneficiaries, awarded $189 million to “a motor vehicle manufacturer who announced in December 2000 that it would phase out the motor vehicle brand.” (Oldsmobile, if you must know.) Bank directors, foreign-dog-race gamblers and sundry other worthies won targeted tax breaks. As one lobbyist told the Washington Post’s Jonathan Weisman, “You wouldn’t be a decent tax lobbyist if you didn’t have tons of stuff in [the bill].”

The comic denouement of this episode is that the giveaways, properly accounted for, will end up costing far more than what was saved in the first place. It’s as if a man up to his eyeballs in debt found a $100 bill and decided to blow it right away, and ended up spending $200.

The spectacle has grown so grotesque that even conservatives like Glenn Hubbard, Robert Novak and the Wall Street Journal editorial page writers -- who regard upper-class tax cuts the way teenage boys regard sex -- have denounced it. Nobody, literally nobody, supports this bill except those who directly profit from it and their toadies and hirelings. And even the latter seem somewhat divided. One lobbyist involved in the bill confessed to Weisman that it “has risen to a new level of sleaze.”


You could blame Congress for this debacle, but that would be like blaming mosquitoes for sucking blood. Congress is designed to look out for parochial interests. The White House is supposed to look out for the national interest. But the sleaze has proceeded because Bush signaled his willingness to sign the bill no matter how tawdry it got.

A normal administration would have some smart policy geeks in a position to prevail on the president to veto such a bill. That’s what’s so uniquely awful about this administration. It would never occur to anybody in power to veto a bill simply because it was indefensible.