Reverie of Revenue Dreaming
Bartlett, Bruce, The Washington Times (Washington, DC)
Republicans in Congress are talking a lot about "corporate welfare." Many would like to cut government subsidies for business to pay for tax cuts for families. This, they believe, will insulate them from the charge that they are financing tax cuts on the backs of the poor and the elderly.
Unfortunately,there really is not a lot of money in corporate welfare. A Cato Institute study published earlier this year listed just $16.6 billion in the 1996 budget - not a trivial sum, to be sure, but not enough to finance a major tax cut. This means that if Republicans are serious about using corporate welfare to pay for a tax cut they may end up looking beyond spending programs and consider tax subsidies as well. That could be a mistake.
There certainly are business subsidies in the Tax Code, such as the tax credit for alcohol fuels. But those who are interested in eliminating corporate tax subsidies often end up attacking tax provisions that are perfectly justified. The problem arises from the way the whole concept of "tax expenditures" developed in the 1960s.
The tax expenditure budgets published by the Treasury Department and Congress' Joint Committee on Taxation (JCT) assume a normal or ideal tax system as a base. Deviations from the base are treated as subsidies, analogous to direct spending programs. But there is no consensus among economists or tax lawyers on what an ideal tax system would look like. Therefore, the decision to list a particular provision as a tax expenditure essentially is arbitrary. Indeed, the Treasury and the JCT cannot even agree between themselves on what is and what is not a tax expenditure. For example, the latest JCT report lists 17 provisions of the Tax Code that it considers to be tax expenditures that Treasury does not.
The biggest problem with calculating tax expenditures is the underlying assumption by Treasury and the JCT that the normal tax system ought to follow a comprehensive tax base. …