The Public Policy / The Argot of the Washington Swindle
Tortora, Anthony
THE ARGOT OF THE WASHINGTON SWINDLE by Anthony Tortora Polemical purposes are often well served by confusing language. Consider the case o f " tax expenditures," a phrase that is boggling to...
...Even further progress is made when the loaded terminology moves from the orthodox liberal segments of opinion and insinuates itself into the language of the Republican Senator from Kansas, Nancy Kassebaum...
...In the past, it is they who have always had to struggle against the force of a rhetorical initiative possessed by the Left...
...They never "save" the taxpayer anything...
...But a final argument may be useful--a reductio ad absurdum...
...newqconventional wisdom is that spending must be cut...
...a substantial portion of the social engineering program of liberalism was blessed with the name of "civil rights" or of "civil liberties...
...Or the accounts of a not-so-new dimension of the essential inequity of the supply-side tax cuts...
...sometimes, its penchant for accuracy have vanished...
...It is remarkable that in the Congresable to businesses...
...The editorial was titled "The Other Kind of Spending" and asserted, without qualification, "There's one kind of expenditure that the administration budget cutters have carefully avoided --the tax expenditure...
...What was odd was the b y l i n e - - p o l i t i c a l r e p o r t e r David Broder...
...It ignored her testimony that unemployment was at a six-year high mainly because it had never receded fully from earlier recessions and that the p a t t e r n of joblessness in the c u r r e n t recession more closely resembled the s t a r t of the mild 1980 slump than the disastrous 1974-75 recession...
...This reveals the extent to which substantial tax advantages have been designed to service the broad welfare purposes of the federal government...
...This notion is also to be seen in the discussion of the supposed unfairness of a tax reduction of uniform percentage because, by this reasoning, the government is "giving" more to the better-off...
...This so-called "non-recourse loan," a powerful inducement to invest, was virtually eliminated by the widespread assault on tax shelters codified by PL 94-455, popularly known as the Tax Reform Act of 1976...
...9 _9 D Nothing promotes the suspension of skepticism among normally quite cynical r e p o r t e r s like an environmental scare...
...First, in order to secure a tax reduction, as opposed to a subsidy, there must be an actual payment by the taxpayer, or the assumption of a liability...
...As we shall see, this is downright misleading...
...Furthermore, it would be a mistake to believe that Prof...
...The concept of"tax expenditures" is not a new one...
...These distinctions warrant elaboration because, as wordsmiths constantly remind us, careless use of the language is both a symptom of and an aid to slipshod thinking...
...An earlier confusiorL for instance, surrounded the use of the egregiously misleading term "loopholes," with its suggestion that tax benefits are due to congressional oversight rather than congressional intent...
...I say controversial because it depends on static assumptions about the future...
...Most people would think it clearly absurd to speak of a man in the highest tax bracket (70 percent until January 1982) as having received a subsidy of 30 cents on each dollar...
...On the contrary, I believe it is time to demonstrate the falsity of the idea that what is called a tax expenditure is spending or, more specifically, a subsidy...
...it's entirely possible that Republican fortunes will be rosy again in time for the 1982 congressional elections," Broder wrote...
...What, really, does it mean...
...THE AMERICAN SPECTATOR FEBRUARY 1982 23 Among the beneficiaries of this are handicapped people, broad classes of the economically hard-pressed, youth in qualified cooperative education programs, and certain ex-convicts (felonies only...
...Though a tax assessed on gross income has many virtues, not the least of which is simplicity, it is striking ifi its kinship to a national sales tax which liberals invariably describe as "regressive...
...True, Republican Governor Albert Quie's prospects for re-election in 1982 a r e n ' t g r e a t , but it is not because of "the tax revolution" that Balz blames Quie for instituting...
...sional Budget Office's extensive review of the " c o s t " of tax expenditures, this most popular and widely sold tax shelter went unmentioned...
...Tax credits are especially important, because they are the most powerful of tax "expend i t u r e s " ; they reduce tax liability directly, whereas deductions merely reduce the income base on which tax is assessed...
...Note, incidentally, that tax reductions in the parlance of liberalism always "cost" the federal government something...
...But I have lost count of the gloom-and-doom stories reporting that the recession is sure to be "deeper than expected...
...Thus, for example, a taxpayer who purchases a property costing one million dollars by using $100,000 of his own money and $900,000 of mortgage money, can amortize the full one million even if the lender's only security is the mortgaged property itself, with no recourse to the personal assets of the borrower...
...Last October, for example, Dan Balz reported from Minnesota that " a three-year experiment in supplyside economics here has left the Republicans in a shambles and the once dispirited Democratic Farmer Labor Party has its confidence back...
...And to his shock, the r e p o r t e r found that the farmers selling off their l a n d were not concerned a whit about the looming environmental crisis...
...Washington is a one-paper town now, and the Post has taken upon i t s e l f the task of discrediting the supply-side approach...
...Thus, a graduated income tax was almost uniformly called "progressive...
...To subsume initially under the word "expenditure" the quite different categories of money not collected and money actually spent, and then in due course to drop the qualifying quotation marks, is to signal the progress of obfuscation...
...The coverage has been so one-sided that it's easy to remember the stories that have been" even-handed or perhaps favorable to supply-side economics, there having been so few of them...
...But there are other distinctions between tax reductions and subsi22 THE AMERICAN SPECTATOR FEBRUARY 1982 dies, of which two should be noted...
...it is more the typical than the eccentric view among those who treat tax reductions as subsidies...
...Oh, well, t h a t ' s just the way the Post always is, you say...
...There it didn't even botheL With placing the phrase "tax expenditures" in quotation marks...
...Since "loopholes" and "tax expenditures" are suspect, this argument says in effect, let's eliminate even more of them, including equipment expenses...
...The political warnings are coming from economic forecasters, some of them long identified with the Democratic party," he said...
...And small wonder...
...He states that the "main element in this subsidy consists of the failure to include in taxable income the income in kind [i.e., the amount at which the home could be rented] enjoyed by the homeowner from his . . . home...
...The premise does, however, unmask the statist assumption that one's income is properly the government's to dispose of...
...The New York Times, marching in _9 l _9 step, in an edltorlal on April 17, referred to certain tax breaks as "hidden subsidies...
...Like other papers, the Post reported on Budget Director David Stockman's comment in the Atlantic Monthly that the Kemp-Roth tax cut of 30 percent over three years was "always a Trojan horse to bring down the top rate" without mentioning that liberal Democrats had first formally proposed to drop the top rate in a single swoop...
...Naturally, the implication was that supply-side economics was failing badly...
...Not really, though...
...The newest one, with appropriate Malthusian overtones, is that highways and urban sprawl are gobbling up America's "prime farmland" at a clip that threatens trouble in food production by around 2000...
...But on supply-side economics, its sense of f a i r n e s s and, Fred Barnes is National Political Reporter for the Baltimore Sun...
...In Greeley, "Lawrence Hertzke is not at all apologetic about the 500 acres he sold for housing tracts...
...For on-the-scene coverage of the vanishing farmlands, the New York Times dispatched a correspondent to Greeley, Colorado, then to Garden City, Kansas...
...In November, with only a fraction of the Reagan tax cut in place, Caroline Atkinson's analysis on "Supply Side: Is the Bubble Bursting...
...Quie managed to index the s t a t e tax system, and later he boosted the sales tax...
...a laudable objective, to which end the WIN credit provides a reduction of the employer's corporate tax liability, the credit being based upon a (varying) percentage of the wages paid to WINeligible employees...
...This is a novel situation for conservatives...
...Second, "tax expenditures" are invariably focused on what Congress has determined to be a desirable social objective, whereas subsidies frequently entail no more than an increase in discretionary income to the recipient...
...In December, the Post quoted J a n e t Norwood, the commissioner of the Bureau of Labor Statistics, to the e f f e c t that " t h e economic downturn is widespread...
...It is money which the government never possessed and to which, under existing law, it never had a legal entitlement...
...Following the November 1980 election, liberals realize that the welfare state must be defended in unconventional ways, using the language of its adversaries (i.e., "cut spending...
...Consider, for example, the letter of William Vickrey, Professor of Economy at Columbia, to the New York Timeson April 27, 1981, in which the professor inveighs against the "subs i d y " to homeowners embedded in the income tax...
...When suspect deductions begin to include something so ordinary and necessary to the running of a business as the expenditure for equipment, then the argument is proceeding, at least implicitly, away from a tax assessed on net income to a tax assessed on gross income...
...any portion you are allowed to keep is a benefaction from the state or, perhaps, a "subsidy...
...These tax benefits, t h e r e f o r e , are designed at least in part to offset the unemployment caused by minimum wage laws...
...To define it neutrally and simply, the phrase "tax expenditure" refers to money not collected by the federal government, either as a result of deductions against (or exclusions from) taxable income...
...Assess tax on income without any reductions therefrom...
...The Post is f a i r e r on most issues than conservatives are usually willing to acknowledge, and its op-ed page is brimming with right-wing columnists...
...Yet this is the premise underlying the notion that any reduction of one's tax liability involves a subsidy...
...Called on to render a negative verdict were three critics of supply-side, economists H e r b e r t Stein, Rudolph Penner, and William Nordhaus...
...The nation, they agree, is in economic recession right now, but they predict a strong recovery in the second half of next year (1982), perhaps vibrant enough to make voters feel good again about the Reagan economic recovery program...
...Indeed, the entire Reagan economic program often seems to have been targeted--not by the editorial writers, but by the reporters...
...In an April 15, 1981 column in the Washington Star, Senator Kassebaum, while making a persuasive case for a careful review of virtually all forms of tax relief, nevertheless advanced arguments replete with the terminological improprieties of the "tax expenditure" genre...
...Next year, she advised us, we will have "a 14 percent tax expenditure increase," and, she said, "by 1986 tax expenditures will have doubled to $465.3 billion from $228 billion in 1981 ." "It is time we recognize this spending for what it is and take action to keep things from getting worse," she added...
...It warned that the United States is losing about 3 million acres of farmland annually to development, and it predicted that "by the year 2000 most, if not all, of the nation's 540-million-acre cropland base is likely to be in cultivation...
...Broder, as fair-minded a r e p o r t e r as you'll ever find, was enlisted to write the story because none of the regulars on the economics by F r e d Barnes beat were willing...
...The potential elaboration of this kind of reasoning is truly awful...
...The prime lure of this kind of investment is that it permits taxpayers to take depreciation on properties even if the taxpayer has no personal liability on money borrowed to finance the acquisition...
...A final irony may be noted in the way an argument, once ill-defined, tends to fall back on itself...
...To portray the Minnesota case as a true supplyside test is at best an exaggeration, at worst a full-blown inaccuracy...
...All of these points still may not persuade us that language is being d i s t o r t e d to serve certain political objectives...
...This is a federal program established in 1967 to provide welfare recipients with training and job opp o r t u n i t i e s to help them become economically independent...
...Oddly, one of the most telling economic pieces in the Post was a favorable one...
...People like Michael Harrington and Ralph Nader have been focusing on them for years as a potential source of additional government revenue...
...There is more...
...appeared on the front page of the Post...
...SUPPLY-SIDE AND OTHER SCARCITIES F o l k s in Washington these days aren't exactly stampeding forward to secure a public reputation as partisans of supply-side economics...
...Consider the case o f " tax expenditures," a phrase that is boggling to the mind and beloved by liberals...
...After President Reagan, Congressman Jack Kemp, and Paul Craig Roberts of the Treasury Department, the supply-side ranks, never swollen, grow woefully thin...
...Credit the Washington Post with at least a measure of responsibility for this phenomenon...
...Kassebaum wrote, "they [i.e., corporations] will claim a huge amount of exemptions this y e a r . . , expense account deductions, equipment deductions, etc...
...It remains available to low-income housing projects but is expressly prohibited to (for example) such things as oil and gas exploration...
...Liberals are afraid to defy this presumption, so they have thought up a way to go on increasing revenues--which is what they want--while at the same time dressing up the revenue increase as an "expenditure cut"--a cut in tax expenditures...
...Without special inducements of this kind some people within these enumerated categories would not be hired at the legal minimum wage...
...dividend and interest income were characterized as "unearned...
...No supply-siders were quoted, and the critics, even a ferocious one like Stein, were not identified as opponents...
...Hobart Rowen, in the IITashington Post of March 19, 1981, referred to a meeting of OMB Director Stockman with reporters in which Stockman was bearded for " t h e Reagan Administration's failure to deal with 'tax expenditures' that swell the federal deficit...
...While Democrats are crowing these days over Ronald Reagan's problems with the economy, some influential voices are warning them to watch out...
...Both these credits effectively reduce the cost of employing certain workers...
...In other words, tax the gross...
...or as a result of direct credits against the income tax liability itself...
...But the Anthony Tortora works for the Department of Labor...
...This trend, the study said, raises "some very serious long-term risks...
...Take, for example, the Work Incentive Program (WIN) tax credit...
...Another kind of tax credit, available as an a l t e r n a t i v e to the WIN credit, is the "targeted jobs credit...
...Tax revolution...
...1"he thought that supply-side economics might succeed, even temporarily, probably never occurred to them...
...Or the victimology pieces about the suffering under the budget cuts...
...Vickrey's view that imputed income should be taxed is peculiar to him...
...I think not...
...Similarly revealing are a few examples of the tax advantages availI n the p r e s e n t case we can also, perhaps, see certain ironies in the predominantly liberal assault on specified tax reductions when those most generously conceived seem designed to offset the harmful effects of other liberal programs, or to work in concert with such liberal programs...
...THE ARGOT OF THE WASHINGTON SWINDLE by Anthony Tortora Polemical purposes are often well served by confusing language...
...That hardly qualifies as a revolution, much less as supply-side ecofmmics...
...And it is not merely to existing tax benefits that this kind of misleading language is applied...
...Who has not heard the proposed tuition tax credits condemned as "subsidies" for parochial schools...
...Of these, perhaps the foremost is the much-used tax shelter-involving special treatment for investment in low-income housing projects...
...The Post itself followed up a couple of weeks later, in an editorial on April 3, 1981...
...If we accept the contention that specified tax reductions are expenditures, does anyone then believe that we will have " c u t spending" if we take steps to increase tax collections by a n o t h e r $465 billion in 1986...
...The source of this scare is the National Agricultural Lands Study, published a year ago...
...And since good agricul24 THE AMERICAN SPECTATOR FEBRUARY 1982...
...The broadening realization that such tax deductions and credits had explicit legal sanction perhaps led to the substitution of the more confusing and less clearly erroneous phrase "tax expenditures" .for "tax loopholes...
...Liberals see the elimination of taxdeductions as a useful tool with which to fight the dismantling of the welfare state...
...In Garden City, the county commissioners were proud of "choosing the benefits of urban growth over preserving the farmland...
...But it has been transformed into an "expenditure" by the (controversial) observation that the federal deficit is increased equally by a dollar uncollected as it is by a dollar actually spent...
...Rowen then added, "Tax expenditures are subsidies, up and down the income scale...
Vol. 15 • February 1982 • No. 2
