WASHINGTON – With sequestration already triggered and a federal budget deadline at the end of the month,the Senate Budget Committee on Tuesday assessed ways to lift the country out of fiscal limbo by eliminating wasteful spending in the tax code.
As both parties operate in an acerbic climate and squabble over the optimal method to reduce a roughly trillion dollar deficit,the solution lies at least partially in restructuring tax laws,Sen. Patty Murray,D-Wash.,the committee chair,said. In 2013 alone,Murray said,the federal treasury will lose $1.3 trillion to tax expenditures,which is revenue the government cedes through tax credits and deductions.
Sen. Jeff Sessions,R-Ala.,diverged starkly from Murray on the premise of the hearing,disagreeing with the language used to define the discussion topics.
“Reducing the deficit by reducing ‘wasteful spending’ in the tax code really suggests how much disconnect we have when analyzing the problems that face America,” Sessions said. “When you allow a person to keep money that they’ve earned because of a certain deduction through charitable or health-care payments,I don’t believe that’s ‘spending’ by the United States Treasury.”
Sessions agreed that segments of the tax system are manipulated and abused,but he urged his colleagues to apply a more nuanced approach to the problem by focusing on cutting spending as much as they do to raising revenues.
“The principles of taxation ought to be spelled out for us,” Sen. Chuck Grassley,R-Iowa,said as a criticism of the Obama administration and Democrats,whom he accused of overreacting to every monetary squeeze. “Just on a whim,we say we’re going to raise taxes.”
Several academic experts testified before the committee.
Edward Kleinbard,a professor of law at the University of Southern California Gould School of Law,cited three areas the committee should think about.
With government discretionary spending soon to reach “unsustainably low levels,” Kleinbard said taxes must rise. “Bluntly,there is no rational alternative,” he said.
Kleinbard said tax expenditures are often created with policy goals in mind – to help families pay for child care,for example. “But many fall into the category of well-intentioned but ultimately inadvisable instances of congressional meddling with our market economy,but subsidizing different forms of personal consumption or business activity,” he said. The government should analyze each of these to see if it’s still needed,he said.
Two tax deductions often help those who need it the least,he said – employer-paid health insurance and the mortgage interest deduction. Employees are not taxed on their employers’ contributions to their health insurance costs.
Jared Bernstein,senior fellow at the Center on Budget and Policy Priorities,said the committee should pay attention to tax breaks that disproportionately benefit the wealthy. He recommended that Congress get rid of the carried interest provision that allows hedge fund managers to have some of their income taxed at a lower rate.
Tinkering with the tax code will be useless no matter how much money it raises if the country doesn’t manage its finances more efficiently,Russ Roberts,research fellow at Stanford University’s Hoover Institution,said.
“We’ve ignored the size of government spending because it’s tempting to believe that all spending stimulates the economy,” Roberts said. “We’re like the alcoholic who thinks that if one glass of red wine a day is good for your heart,then a bottle is even better.”
In some sense,not a single budgetary concern the hearing raised is necessary to warrant an analysis of the tax laws,Sen. Sheldon Whitehouse,D-R.I.,said.
“The idea that a hedge fund billionaire pays a lower tax rate than a hospital orderly or a firefighter … that’s just plain wrong on its merits,” Whitehouse said. “Special interests have been at it,and they’ve carved all these loopholes. This is stuff we should be cutting out of our tax code on moral and fairness reasons anyway.”
Reach reporter Amer Taleb at [email protected] or 202-326-9867. SHFWire stories are free to any news organization that gives the reporter a byline and credits the SHFWire.