You might expect conservatives to be upset by the massive pork barrel that rolled through Congress last week disguised as a tax-reform bill. Many are. Daniel J. Mitchell of the Heritage Foundation lamented “a missed opportunity.” Citizens Against Government Waste labeled it a “corporate welfare giveaway.” And Taxpayers for Common Sense, the Yosemite Sam of the tax-reform movement, called the bill a “platinum-plated pig” full of “gift-wrapped giveaways” like a “hydra-headed K-Street wish list.”
Conservatives are angry because the corporate-tax bill, which started as a measure to repeal $5 billion in annual U.S. export subsidies and stave off a trade war with Europe, somehow turned into a hundred-billion-dollar bonanza for special interests. The Bush administration provided no leadership as Congress loaded the bill with tax credits like the following:
$169 million for Puerto Rican rum
$9 million for archery products
$35 million for fishing-tackle boxes
The elimination of taxes on whaling
Like every American, I enjoy getting drunk and going fishing for whales with my bow and arrows. Budget discipline clearly isn’t a priority of this administration, so why pretend it will get tough on frivolous measures like these?
However, in order to salvage much-needed support from fiscal conservatives before November, Bush needs to show some resolve and stand up to Congress on three provisions in this bill which, if contained in the final version, would be major embarrassments for his administration. These provisions would bust the budget, hinder the movement for broader tax reform, and create harmful economic distortions.
The $9.6 billion tobacco “buy-out”: This provision of the House bill would replace the system of quotas and price supports for tobacco with billions of dollars in direct payments to tobacco farmers over the next five years. Republicans added the provision as a compromise with southern, tobacco-state Democrats, who say it will solve the problem of tobacco farmers’ dependence on federal-government handouts. But the collapse of the 1996 Freedom to Farm Act demonstrates that programs designed to “wean” farmers off subsidies have short political lifespans. Congress sabotaged that program with emergency supplemental subsidies each year from 1998 to 2001, when Bush reversed its course entirely by signing the 2002 farm bill. Bush’s record on farm subsidies is atrocious. He should not let this “temporary” giveaway to tobacco farmers sully it further.
The deductibility of state sales taxes: In 1986, Ronald Reagan eliminated the deductibility of state sales taxes as a step toward tax reform. Eliminating the deduction of state and local income and property taxes would have been the next logical step, but this step was never taken. Now legislators from states that rely on sales tax (Texas and Florida, for instance) are claiming their states are treated unfairly, and so they added a provision in this bill making state sales tax deductible. Bush needs to demand that this provision is removed in conference. As Mitchell from Heritage recently pointed out, allowing the deduction of any state and local taxes provides state and local governments with an incentive to raise taxes and capture part of the taxpayers’ savings. No claimant to Ronald Reagan’s legacy as a tax reformer would sign a bill that took this step backward.
The tax rate cut for manufacturing: This feature of the Senate version of the bill had many conservatives blanching. The Economist labeled it a “throwback to 1970s industrial policy” while Pamela Olsen, a former administration official, was concerned that by providing a rate cut for manufacturers only, the bill would create pressure on businesses to restructure in order to qualify for the tax cut. In contrast, the House version of the bill contains an across-the-board 3 percent cut on the corporate income tax rate that would lessen distortions and provide an overall boost to the economy. Bush should insist that Congress emerge from conference with the House, not the Senate, proposal for cutting corporate taxes.
These proposals also make sense because they bring the bill closer to budget-neutrality. According to Congressional Budget Office estimates, the House bill would add $34 billion to the deficit. Removing the tobacco buyout and the deductibility of state sales taxes would reduce this cost by $13.1 billion, which is a good start. Bush should make it clear to lawmakers he will not sign a bill that adds to the skyrocketing national debt.
Congress, spending like a drunken sailor for the last four years, has finally come right out and subsidized rum and whaling. Fine. But if Bush allows them to dole out yet more farm subsidies, take a step backward on tax reform, and create a large distortion in the economy, he might see what’s left of his credibility with fiscal conservatives sail over the horizon.
–Stephen Spruiell is a Collegiate Network/NR intern.