ataxingmatter: Social Security/Medicare vs Corporate Welfare
So corporate welfare should be what is cut, not Social Security or Medicare benefits, when we start looking at areas where cash is senselessly flowing in ways that don’t further the quality of life of typical Americans. See Carl Gibson, Cut Corporate Welfare, Not the Safety Net, HuffPost Politics (Jan. 7, 2013). As Gibson notes,
In Congress’ latest “fiscal cliff” deal that supposedly had to be passed in order to avoid economic calamity, we spent $30 billion on extending unemployment benefits for a year, and $205 billion in corporate tax breaks, subsidies and excessive tax loopholes. Most of these Christmas gifts for corporate America are benefiting major, multi-billion dollar corporations that haven’t paid a dime of U.S. income taxes in years, like GE and Boeing. In other words, taxpayers spent six times more on giving free money to companies making record profits than we did to making sure the people who were laid off by these corporations can still feed their families. $205 billion in corporate goodies was okay with Speaker Boehner, but $60 billion in Hurricane Sandy relief apparently wasn’t.
And the New York Times today hit on another of the absurd subsidies that crept into our Code in a well-intentioned provision to help small farmers but has resulted in most real estate investors seldom paying taxes on their gains and many corporations using the device to avoid millions in taxes annually. That’s the “section 1031” like-kind exchange. There’s really no normative policy justification for allowing this kind of exchange to avoid taxation of the realized gain whereas other exchanges (non-like-kind) do not. There is even less justification for the avoidance of taxation for the kinds of intermediary exchanges that have evolved over time, allowing actual sales to occur, so long as the seller ensures that the money is put into an escrow account until it is used to buy “replacement” property. While it is hard to see any real justification for any of the like-kind exchange provisions, and certainly not for the intermediated sales + replacement regimes, it is especially problematic when the intermediated regimes become subject to abuse–where intermediaries allow the exchanging taxpayer full access to the cash, e.g., as collateral for loans, etc. during the period when no use is permitted. The New York Times covered that issue today. See David Kocieniewski, Major Companies Push the Limits of a Tax Break, New York Times (Jan. 6, 2013).
The federal government now allows more than $1.1 trillion a year in this and other tax expenditures. Each of those incentives — which include hundreds of exemptions, exclusions, deferrals and preferential rates — either adds to the budget deficit or shifts the cost of government to other taxpayers.
Some are narrowly targeted and offer aid to specific industries like Nascar owners, asparagus farmers, oil companies, yacht makers or solar panel producers. Others, like accelerated depreciation or the tax code’s preference for debt financing over equity, provide tax benefits for wide swaths of businesses.
“Tax expenditures are very similar to an entitlement program, so they’re easy to start,” said George K. Yin, former chief of staff of the Congressional Joint Committee on Taxation, and now a professor at the University of Virginia School of Law. “But once a tax break gets started, people think they’re entitled to it, so they are very difficult to end.”
Professor Yin has it exactly right–those tax breaks are very “easy to start” and very lucrative for corporations. Once they get them, they will say (as the real estate people do here) that jobs depend on keeping them going. That is usually not true, or much less of an impact than claimed. But Congress caves easily on those items, and we go on with a giveaway code for Big Business.