The voices of Tax Policy Center's researchers and staff
It’s time for the annual Tax Vox Lump of Coal Awards for the worst tax policy of 2014. The past 12 months were a banner year for bad ideas and their perpetrators. The Top 10 are:
- Frank Underwood & Elvis. Tax subsidies for economic development hardly ever pay for themselves. But two are worthy of special note: The Netflix series House of Cards successfully shook down Governor Martin O’Malley and the Maryland legislature for $11.5 million in tax credits to continue to film in the state, which is currently running a $1.2 billion budget deficit. Meanwhile, Memphis and Shelby County,TN plan to sell up to $125 million in tax-exempt bonds to spruce up Elvis’s Graceland, which is still owned by Presley’s daughter, Lisa Marie. Are they afraid she’ll move the place to Rhode Island if she has to go to the bank like the rest of us?
- Internet taxes. Congress believes deeply in federalism—except when it doesn’t. Thus, it extended its long-standing prohibition against states taxing Internet access. At the same time, it refused to sort out rules to make it easier for states to collect sales taxes on online purchases. After all, we wouldn’t want to strangle the Internet in its cradle.
- Tax-free Puerto Rico. The island is an economic basket case. Its solution: New rules that exempt anyone who lives on the island for half the year from paying federal tax on capital gains generated by investments purchased through local banks. The rules also let investors avoid local taxes on dividend and interest income for 20 years. Hedge fund operator John Paulson loves the tax-free gains so much he reportedly is encouraging his friends to join him. It is not clear how tax subsidies for billionaire investors will materially reduce the commonwealth’s unemployment rate, which stands at 14 percent.
- Corporate tax inversions. Only in America can a firm with corporate offices in Minnesota merge with a company with corporate offices in Massachusetts and become Irish, thus magically cutting its statutory tax rate by about two-thirds. A wave of tax-driven inversions shined a spotlight on the U.S. corporate tax, which has the highest rate in the developed world at 35 percent, a raft of tax preferences that make it easy for firms to pay much less, and rules that allow multinationals to avoid paying at all until they return foreign income to the U.S.
- Tax repatriation. The President and many in Congress would address this problem by granting firms a tax holiday for bringing that overseas income home. Instead of paying at the 35 percent rate, they could pay at perhaps 5 or 10 percent. Obama would like to use the revenue to pay for highways and public transit. Rep. John Delaney (D-MD) came up with the idea of an auction where multinationals could bid on low-interest infrastructure bonds in exchange for tax-free repatriation of foreign income. All this proves there are lots of clever ways to make a huge tax cut for multinationals look like something else.
- The Highway Trust Fund. Lawmakers love to cut ribbons on new highway and transit projects but don’t have the courage to raise taxes to fund them (see above). But they did finally figure out how to pay for a short-term extension of the highway bill. They cut employer contributions to worker pensions. I’m really not making this up.
- The IRS budget cuts. First, blame the IRS for simultaneously unleashing jackbooted thugs on unsuspecting taxpayers and failing to do enough to prevent fraud. Then give the agency more work to do. Then cut its budget. Then express outrage that the IRS is not doing its job. Finally, cut its budget again. It must be so much fun to be a politician.
- Tax-exempt political contributions. The pandemic of political dark money spread in 2014. According to the non-partisan Center for Responsive Politics, the ten biggest non-profit givers reported spending $125 million on federal candidates this year (NOTE: They likely gave much more than they had to report). And they used their non-profit status to hide the names of their contributors. Does anyone seriously believe these are social welfare, and not political, organizations?
And now, drum roll: The competition was tough, but after much deliberation, we are picking two winners of this year Lump of Coal Award:
- House Speaker John Boehner. Ways & Means Committee Chair Dave Camp works for years to draft a serious tax reform plan that does exactly what Boehner claims to support—it cuts rates and eliminates tax preferences. So how did the Speaker respond when asked whether he backed his own chairman’s proposal? “Blah, blah, blah, blah,” he said gracefully. Keep this in mind the next time Boehner claims tax reform is on his agenda for 2015.
- The tax extenders. So wrong. In so many ways. This year, Congress allowed 50+ special interest tax breaks to expire for eleven-and-a-half months, then restored and extended them—for two weeks. Do I need to say that writing tax policy with the lifespan of a carton of eggs (as outgoing Senate Finance Committee Chair Ron Wyden memorably put it) is a bad idea? Or that mindlessly adding $42 billion to the deficit is even worse?
Another year that proves our motto here at Tax Vox: So many bad ideas, so little time. Despite it all, best wishes from all of us for a happy holiday season and a better 2015.
Posts and Comments are solely the opinion of the author and not that of the Tax Policy Center, Urban Institute, or Brookings Institution.