The Revelries of Baucus

The New York Times on Sunday carried a heavy breathing report alerting the diminished newspaper-reading public to the fact that Senator Max Baucus (D., Mont.), who chairs the committee that shapes corporate-tax law, has many connections to corporations that would like to see the tax code shaped in ways that benefit them. Angels and ministers of grace, defend us! Reports the Times:

Restaurant chains like McDonald’s want to keep their lucrative tax credit for hiring veterans. Altria, the tobacco giant, wants to cut the corporate tax rate. And Sapphire Energy, a small alternative energy company, is determined to protect a tax incentive it believes could turn algae into a popular motor fuel.

To make their case as Congress prepares to debate a rewrite of the nation’s tax code, this diverse set of businesses has at least one strategy in common: they have retained firms that employ lobbyists who are former aides to Max Baucus, the chairman of the Senate Finance Committee, which will have a crucial role in shaping any legislation.

No other lawmaker on Capitol Hill has such a sizable constellation of former aides working as tax lobbyists, representing blue-chip clients that include telecommunications businesses, oil companies, retailers and financial firms, according to an analysis by LegiStorm, an online database that tracks Congressional staff members and lobbying. At least 28 aides who have worked for Mr. Baucus, Democrat of Montana, since he became the committee chairman in 2001 have lobbied on tax issues during the Obama administration — more than any other current member of Congress, according to the analysis of lobbying filings performed for The New York Times.

. . . Mr. Baucus is viewed as an important ally when it comes to including corporate tax priorities into legislation. Last year, he introduced a plan — most of which was eventually passed into law as part of the fiscal cliff deal in January — that contained more than a dozen tax breaks, some of them pushed by clients who had retained Washington lobbying firms that employ his former aides or political advisers. Shannon Finley, who served as a political consultant and fund-raiser for Mr. Baucus before joining a lobbying firm in Washington, was hired in late 2011 by Beam, the liquor industry giant, to protect a federal tax break that it gets a cut of for producing its Cruzan rum in the United States Virgin Islands. Despite protests from fiscal conservatives that it was a giveaway, the provision was included in Mr. Baucus’s package, costing $222 million over the coming decade. Ms. Finley declined to comment.

First of all: Thanks to Eric Lipton of the Times for an unusually forthright report, one that at least acknowledges exactly who it is — “fiscal conservatives” — standing in opposition to things like the great rum subsidy.

The Times has been maddeningly hit-and-miss on the subject, but in fairness, hit-and-miss is a 100 percent improvement for the Times, which is miss-and-miss on most important issues. For example, in a March editorial headlined “The Real Spending Problem,” the Times correctly identified the fact that special subsidies and giveaways written into the tax code are, as a ledger issue, fiscally indistinguishable from simply writing checks to favored interest groups. But the Times being the Times, it went on to argue for the repeal of three tax policies that collectively amount to basically nothing, and which are not targeted subsidies of the type it decries: the carried-interest treatment of certain private-equity investments, IRA rules that allow some investors to amass very large tax-deferred retirement accounts, and “like kind” exchange rules for farmers. Even if we accept the argument that the carried-interest rule is an unfair giveaway to Wall Street (and I do not), the revenue lost from that arrangement is chump change: less than $2 billion a year, as the Times acknowledges. The farm rule adds up to about $3 billion a year in forgone revenue. (There is no good estimate on the IRA rule, to my knowledge.)

Meanwhile, the fiscally significant tax giveaways find a stalwart defender in the editorial page of the New York Times. The deductibility of state and local taxes — a direct subsidy to tax-and-spend governments on the familiar blue-state model — costs the Treasury between $40 billion and $50 billion a year — 20 to 25 times the cost of the carried-interest exemption. Like the benefits assigned to investment income, this tax break primarily benefits higher-income people. Not coincidentally, they disproportionately benefit higher-income people in New York Times country: New York, Connecticut, New Jersey, and other high-tax states. Maintaining that tax giveaway is not bad fiscal policy, according to the Times, but rather a moral imperative.

The mortgage-interest deduction cost the Treasury some $76 billion in 2011, but do not expect that tax subsidy to knock carried interest off the top of the Times’s most-wanted list. The tax exemption granted to municipal bonds is a direct subsidy to big-spending states and cities, too, at a cost of some $30 billion a year.

Those three tax subsidies alone account for between $100 billion and $150 billion in forgone revenue annually, but the New York Times is worried about picayune billion-here, billion-there deductions. (Don’t get me wrong: I’d repeal those farm giveaways, too.) It is, as usual, a question of who is being subsidized at the expense of whom.

And keep in mind, the New York Times is the head varsity cheerleader for the Obama administration, which is a veritable factory of special-interest tax-credit proposals. Those McDonald’s credits mentioned in the Times story? The Obama administration proposes to make them permanent. Politically favored energy interests, certain small businesses, renewables, politically connected automobile companies: Obama’s economic strategy has a tax credit for everybody . . . everybody who fits into the administration’s political agenda, at least.

The corporate tax is not a very large source of federal revenue (about 10 percent) but it is a very large source of corporate welfare, conferring benefits on the favored at the expense of the unconnected. It should be repealed. Corporate revenues have only so many ways of hitting the pockets of investors, executives, and employees; ideally, they would be taxed at that point, as personal income, with all sources of income taxed in the same way, whether from salaries, bonuses, capital gains, dividends, or inheritances. If we did so, the New York Times, and the conventional wisdom it represents, would have a lot less to worry about when it comes to the career paths of Senator Baucus’s former aides. And the tax code could go back to being a revenue source rather than a favor factory. 


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