- The Washington Times - Monday, October 31, 2011

President Obama has repeatedly called for doing away with special tax breaks he says litter the tax code — but he himself has recently proposed yet another new carve-out to push businesses to hire veterans and spur the economy.

He is not alone.

Even as the government’s dim fiscal picture pushes all sides to try to sweat savings out of the budget and all sides say carve-outs should be on the table, Republicans and Democrats on Capitol Hill are proposing their own special breaks, known as “tax expenditures” in legislative-speak, for items such as clean energy and student-loan repayments for veterinarians.

“We’re our own worst enemy,” said Sen. Tom Coburn, Oklahoma Republican and a vocal advocate for reforming the tax code. “And that’s based on parochialism and lobbying. You have to reform the tax code for two reasons — we’re wasting a ton of money and it’s stifling growth.”

After the last major tax reform was enacted in 1986, tax expenditures have risen steadily each year since the mid-1990s. They include breaks that benefit millions — such as deductions for retirement savings, charitable contributions and employer-sponsored health plans — as well as ones targeting much smaller groups of people.

The tax code is now littered with more than 200 credits, deductions or other tax expenditures, and the number has risen moderately over the past five years to reach roughly $1 trillion in revenue that the government would otherwise be collecting.

“Seems every member of Congress has a special tax break,” said Eli Lehrer, vice president of the Heartland Institute. “I’ve seen everything from retrofitting your house for earthquakes to donating organs.”

All sides agree that such programs are ripe for cuts — but senators also keep proposing new ones, arguing that the tax code is a good way to push people to make the kinds of economic choices that can stimulate the economy and produce much-needed jobs.

The new tax credit that has the best chance of passing is Mr. Obama’s veterans hiring proposal, which would offer up to $9,600 to businesses that hire veterans. Last week, Republican Rep. Peter T. King of New York joined Rep. Peter Welch, Vermont Democrat, in calling for action on the measure, and Republican leaders have said it’s an area where they could find common ground with Mr. Obama.

Republican Rep. John Sullivan in April introduced the New Alternative Transportation to Give Americans Solutions Act, known as the NAT GAS Act, which offers between $5 billion and $9 billion to encourage businesses to convert their trucks to natural gas. It has extensive support in both parties, but more than a dozen conservative lawmakers have withdrawn their names as co-sponsors, arguing that the government should not pick winners in the energy market.

Meanwhile, eight Republicans have signed on to a bill led by Sen. Tim Johnson, South Dakota Democrat, that would make a loan repayment program for veterinarians tax-exempt.

“This is a good investment in trying to get more veterinarians in rural areas, and like the president’s jobs bill there are lots of way to offset that revenue in other places in the tax code. There’s a shortage of vets out there,” said Perry Plumart, a spokesman for Mr. Johnson.

Sens. Benjamin L. Cardin, Maryland Democrat, and Mike Crapo, Idaho Republican, introduced the Energy-Efficient Cool Roof Jobs Act, which would allow businesses to depreciate energy-efficient roofs more quickly. Sue Walitsky, a spokeswoman for Mr. Cardin, said the bill would create an estimated 40,000 jobs, which would in turn send even more revenue to the government.

“The more people with jobs, the more people are paying taxes,” she said.

Even as the proposals pile up, attempts to simplify the tax code and increase revenue by repealing expenditures have gone nowhere.

Mr. Obama’s veterans-hiring tax-credit proposal is part of his broader $447 billion jobs bill, which he proposed paying for chiefly by limiting the level of itemized deductions that high-income taxpayers could claim.

That limit was soundly rejected, though, by Senate Democrats, who stripped his deduction limit from their version of the bill and replaced it with a surtax on Americans with annual incomes greater than $1 million. That bill failed to garner majority support in a test vote last month.

Tax expenditures remain a ripe target, though. The deficit reduction commission formed by the president last year suggested turning itemized deductions into 12 percent tax credits.

A Republican budget assembled by Rep. Paul Ryan of Wisconsin, which was passed by the House but died in the Senate, called for eliminating special tax benefits, although it didn’t specify which ones.

While chances for tax reform seem unlikely, as every major effort has ended in a stalemate, Mr. Coburn is championing the cause.

Last month, he sent a letter to the congressional supercommittee on the debt asking members to consider repealing 12 tax expenditures that he said would save $300 billion over a decade.

In his battle, he has repeatedly run into Grover Norquist, president of Americans for Tax Reform, who administers an influential “no new taxes” pledge and who says repealing expenditures is the same as raising taxes.

He has said lawmakers who want to repeal them will need to find offsets elsewhere to ensure no new revenue goes to the government.

Mr. Coburn and Mr. Norquist have exchanged heated letters about the issue.

Except for perhaps the mortgage-interest deduction, tax expenditures have the same impact as increasing spending, Mr. Coburn said.

“If we moved them over to the spending side, they’d be eliminated next year,” Mr. Coburn said. “You’re paying people to do things. It’s spending.”

Steve Ellis, vice president of Taxpayers for Common Sense, said he sees Democrats often more willing to go after expenditures, with many Republicans accusing them of increasing taxes. But whatever lawmakers say about expenditures, special interests often prove too powerful to deny, he said.

“Certainly there’s a lot of lawmakers up there talking out of both sides of their mouth,” he said. “Certainly, that’s not entirely surprising that they’ll have the one hand out for a tax break while they’re wagging the other finger at the code.”

• Paige Winfield Cunningham can be reached at pcunningham@washingtontimes.com.

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