"The Tax Breaks That Ate America"

Michael Lind had a great piece in Salon this week proving "The greatest threat to the U.S. economy is not creeping socialism. It's creeping subsidism."

Here's the latest bold new idea for reconciling the costs of national defense with the need to avoid adding to federal deficits or raising taxes. A bipartisan coalition of "New Democrats" and moderate Republicans has proposed buying weapons for the U.S. military through the IRS rather than the Pentagon. Here's how it would work. Instead of being paid to deliver planes, missiles and tanks, defense contractors would receive "weapon supply tax credits" (WSTC). The defense contractors would be able to reduce the taxes they owed the federal government by the prices of the weapons they delivered. Because the tax credit would be refundable, if the prices exceeded a firm's annual tax liability, the IRS would send a check to the firm in the amount of the difference. In this way, the federal government could finance a massive military buildup -- and because tax credits aren't counted as part of the federal budget, for official purposes the cost of the buildup would be zero!

I had you going there for a minute, didn't I? The "weapons supply tax credit" is a joke. It was proposed some years ago by the late David Bradford, a Princeton economist who worked in the Ford and George H.W. Bush administrations. Bradford's purpose was to ridicule the growing reliance of Congresses and presidents on tax credits and other so-called tax expenditures as an alternative to ordinary spending programs funded by ordinary taxes.

No, he's not just talking about the subsidies for oil drilling and the domestic yacht industry; he's talking about the home mortgage deduction and credits for employers who offer health insurance and even the Earned Income Tax Credit.

EITC functioning as a refundable tax credit gets it past the no-welfare wingnuts in Congress, but it enables the same wingnuts to continue to oppose genuine social welfare programs.

The political scientist Christopher Howard calls the tax expenditure system the "hidden welfare state." It might just as well be called the Blob That Ate the Economy. If only non-business subsidies to individuals are counted, the IRS-administered subsidy sector costs around $800 billion a year. That's about 6 percent of U.S. GDP, or about a fifth of the total official expenditure of the federal, state and local governments combined.

SNIP

Social democrats and reasonable libertarians might consider uniting in a grand alliance against the bloated subsidy sector. As a rule, public goods should be provided by the government and private goods by the private sector, with a small contribution from a modest nonprofit sector. Most of the 6 percent or so of GDP that is now converted into the dark matter of tax expenditures needs to be divided between a restored public sector and a restored private sector -- with a rebuilt border between them. The principled left and the principled right can argue about where the border between the public sector and the private sector should be. But at least they can agree that there should be a border, and that the no man's land of the subsidy sector needs to be erased from the map.

Read the whole thing.

"No More Subsidies!" Snappy, easy to remember, fits on a bumper sticker.