Happy Tax Day!

Happy Tax Day!

Of course I mean that ironically. Most of us approach April 15th with either a sense of dread or a sense of relief, but very few of us see it as a day for celebration. Even my most politically liberal clients (and I am pleased that I have clients and friends from just about every possible political persuasion), cringe when the tax man calls.

Although most of us do not like paying taxes, most of us also recognize that it is inevitable. We want a government that helps to build and protect a society where our values can flourish. Such a government needs revenue to function and and so we pay taxes. But we also want taxes to be levied and enforced in a fair and just manner. This is a principle that cuts across party lines and ideology. In this spirit, I want to recommend an editorial in today's Wall Street Journal entitled "The Loophole Factory."

(http://online.wsj.com/article/SB120821609494914471.html?mod=opinion_main_review_and_outlooks)

The editorial is a criticism of the current Congress which, the editorial claims, is becoming "a tax loophole production factory for the powerful." As case in point, the authors point to the "Foreclosure Prevention Act" passed by the Senate last week. This bill and versions of it being considered by the House include:

  1. $25 billion in tax subsidies for home-builders and "other industry interests hurt by the crunch";

  2. A $7,000 tax credit for those who buy foreclosed property;

  3. A $7,500 tax credit for first time middle income home buyers;

  4. $6 billion in tax deductions for renewable energy producers (on top of the $10 billion included in the energy bill.)

The Wall Street Journal tries to make this sound like a problem driven by Democrats. In fact, the Journal goes so far to claim that the Democratic strategy is to raise overall tax rates so they can then give special tax breaks to their political friends. As my conservative friends read this they probably nod in vigorous agreement. But in making that statement, I believe the Journal completely misses the seminal point.

The seminal point, in my view, is that neither part has shown any ability to act responsibly with regard to public finance. Spending is out of control and the most galling aspect of this behavior is that it is ubiquitous. It is not an issue of Republican versus Democrat. Rather it is simply another example of Congress pandering to the powerful. The Republicans have spent the past eight years doing the exact same thing.

The chart at the top of my post makes my point. It plots government revenue (red) and spending (blue) since 1993. The solid lines are the actual dollars of revenue and spending as reported by the Congressional Budget Office and the dashed blue line is the spending that would have occurred if the Bush administration has maintained the rate of spending growth set by the Clinton administration. (This graph does not include the cost of the war in Iraq.) As the chart shows, had Clinton-era spending discipline been maintained, we would have a healthy surplus right now.