Earmarks: Will Congress Tackle Tax Expenditures?

  • Share
  • Read Later
Alex Brandon / AP

Erskine Bowles, left, and former Wyoming Senator Alan Simpson, who co-chair Obama's deficit commission, speaking on Capitol Hill on Nov. 10, 2010

Erskine Bowles, a co-chair of President Obama's deficit commission, fully supports recent congressional efforts to stop spending earmarks, also known as pork. But he is also on a mission to raise America's awareness of the other white meat that is much more responsible for bloating the federal budget.

"You all write and give all these guys up there all this credit for getting rid of $16 billion a year in earmarks," Bowles said Friday, referring to Congress, during a bacon-and-egg breakfast with reporters that had been organized by the Christian Science Monitor. "Those are earmarks that are in the spending bills. There are $1.1 trillion in annual earmarks in the tax bills. And you give them a free ride. It's crazy."

Earmarks in the tax code are commonly called tax expenditures under federal law, and they include all special exclusions, deductions, exemptions, credits, preferential rates and deferrals that allow people to reduce their taxes. These include all kinds of widely popular programs from which millions of Americans benefit. If you pay a mortgage, you benefit from the mortgage-interest deduction. If you have a child, you benefit from the child tax credit. They also refer to a group of narrowly tailored programs that benefit certain industries or companies — breaks for owners of NASCAR tracks, makers of archery equipment and oil companies, just to name a few.

"There is a whole lot of spending Congress is doing that is not recognized as spending because it is done through the tax code," explains Steven Wamhoff, the legislative director for Citizens for Tax Justice, a liberal group that advocates more responsible budgeting. "There are a lot of situations where members of Congress think if you call something a tax cut that makes it a lot more appealing than calling it spending."

In each case, the tax break is protected by interests as influential as any locality in need of a new bridge to nowhere or a federally funded agricultural history museum. But the politics around tax expenditures historically can be sharply different from the politics that surround earmarked spending.

In recent months, incoming Speaker of the House John Boehner has claimed that Congress should change the way it looks at specialized tax breaks. "We need to take a long and hard look at the undergrowth of deductions, credits and special carve-outs that our tax code has become," Boehner said in a pre-election speech about his priorities. "And yes, we need to acknowledge that what Washington sometimes calls tax cuts are really just poorly disguised spending programs that expand the role of government in the lives of individuals and employers."

Other conservatives, however, are dead set against any reduction in special tax exemptions if the savings from those reductions go to reducing the deficit. Grover Norquist, author of the Taxpayer Protection Pledge, which has been signed by 235 Representatives and 41 Senators from the incoming Congress, has long maintained that unlike with spending earmarks, any money saved by eliminating tax expenditures cannot be used to spend down the deficit. "Then what you would be doing is raising net taxes," explains Ryan Ellis, the tax-policy director for Norquist's organization, Americans for Tax Reform.

A draft proposal by the co-chairs of the Obama deficit commission has targeted tax expenditures for massive cuts by going after everything from the mortgage-interest deduction to depreciation benefits for business. The cuts would be offset, in part, by lowering marginal rates for personal and corporate income tax.

Such lines in the sand are likely to be tested next spring, when Republicans have promised a showdown (and hinted at the possibility of a shutdown) over the need to raise the debt ceiling. Deficit hawks hope that the debate over the ceiling will force some hard choices, including the elimination of many tax expenditures. "Let me tell you, this is going to be beautiful politics, the brutal kind," said former Wyoming Senator Alan Simpson, the other co-chair of the Obama debt commission. "The debt limit, when it comes in April or May, will prove who's a hero and who's a jerk and who's a charlatan."