In his last week as head of the JCT staff, Ed Kleinbard spoke in DC on the conundrum of tax expenditures. Much of what he said is laid out in the JCT's report categorizing types of tax expenditures.
But here is what I think is the most important concept to be taken from his speech: Congresional committees have forfeited their primary role on most policy issues to the budget and tax-writing committees--Ways & Means and Finance, in particular. We are making national policy through the tax expenditure provisions, that pass with little scrutiny through committees with little expertise and then are fixed for life in the Code, not subject to the kinds of routine re-examination that budget line items receive. The Congress loses because of this, since a few people on the number-crunching committees become the funnel through which most meaningful legislation must pass. And the American people lose because of this, since programs in Agriculture or Energy or Derivatives aren't reviewed in depth by the people who have a vested interest in those programs and in ensuring that we have a workable, coordinated national policy but rather by the same old tax wonks that look at everything else.
In other words, tax expenditures should be on everybody's list for items to be removed from the tax code, because tax expenditures:
1) complicate the Code and present opportunities for gamesmanship as people try to get themselves into the sweet territory of qualifying for the tax break;
2) create bureaucratic nightmares for the IRS, which has been turned into a general enforcement agency, enforcing not just the tax laws but much of the policy by way of the tax expenditure provisions (think, e.g., the tax expenditure scam that has newspaper companies getting tax relief for mixing different solvents);
3) balkanize the provision of services in almost every area, since the activities incentivized by the Code provisions may even conflict with the kinds of incentives that the substantive laws have created or at the least are likely to be redundant, wasting federal tax dollars.
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