Tax credits, special interests, lobbyists, and limited government 

Business lobbyists always seem to want tax hikes to be broad-based and tax cuts to be targeted. For lobbyists -- not necessarily for their clients -- the worst possible tax code would be a clean tax code. If we didn't have hundreds of deductions and credits and special taxes, there wouldn't be as much massaging and tweaking to do.

My colleague Conn Carroll hit on this important point in his column yesterday:

The only winners from a 3.8 million-word tax code are big businesses who can pay lawyer-lobbyists millions of dollars for advice on how to turn the tax system into a competitive advantage over smaller firms.

Our complex tax code has become a weapon industry incumbents use to keep out new competitors. Since the vast majority of new jobs coming out of a recession are usually created by small businesses, the code's complexity has become a hindrance on economic growth.

I often make similar points to demonstrate how Obamanomics naturally breeds more lobbyists and benefits the entrenched, but Carroll's column was dedicated to critiquing the GOP's way of doing business. Particularly, Carroll was whacking Americans for Tax Reform's Taxpayer Protection Pledge, which, he writes, "frees Republicans to buckle under lobbyist pressure and vote for any new tax subsidy, but then punishes them for trying to close any later."

Without wading too deep into the current fight between ATR and one of my favorite senators, Tom Coburn, I want to add that I agree with ATR's Grover Norquist that Republicans should never offer up tax hikes, and if they will repeal bad tax credits, they should pair it with a rate reduction. I also agree with Coburn that the ethanol tax credit resembles
spending more than a tax break.

But here's my quibble with my colleague Conn. He writes, "Lower taxes will always be the bread and butter of Republican policy. But for too long, a single-minded focus on lowering rates and revenues has locked the party into abetting bad public policy."

I would say there has been insufficient focus on lowering rates and too much willingness to play the Obamanomics game of using tax credits to pick winners and losers. But that's probably a semantic disagreement. Carroll is saying that tax cutting has displaced tax reform, and he's right on that.

We need both, and the two go together: cut taxes and pair those cuts with rate reductions, yielding a cleaner, lower tax code. You don't have to be on the right-hand side of the Laffer curve to raise revenue by cutting taxes if your tax cutting also makes the code more neutral. If government revenues in turn rise, guess what? You can cut rates a bit more.

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Timothy P. Carney

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