The Well-Off and the Well-Connected

Barack Obama, Senior Lobbyist for special interest tax breaks

President Obama’s weekly address was about the sequester and was typical of his strident rhetoric. Acting as if he had no role in enacting the sequester law he repeated claims that tiny incremental reductions in the rate of government spending growth would “inflict pain on communities,” hurt the economy, rob the middle class and cost 750,000 jobs,  a claim that contradicts economic history.  He concluded with:

And let’s be clear. None of this is necessary. It’s happening because of a choice that Republicans in Congress have made. They’ve allowed these [spending] cuts to happen because they refuse to budge on closing a single wasteful [tax] loophole to help reduce the deficit.  They decided to protect special interest tax breaks for the well-off and well-connected…

An impartial observer would say the President is the one who refuses to budge.  He refused to consider any alternative to the sequester except additional tax hikes, even though the top bracket tax rate increases he demanded during the election campaign have already been enacted into law.

But the most stunning hypocrisy was Obama presuming to blame others for…

special interest tax breaks for the well-off and well-connected…

To the right is a list of taxpayers and financial activities that will benefit from special interest tax breaks included in the fiscal cliff bill that President Obama signed into law on January 2.

The fiscal cliff bill was hailed by Democrats and the media as a Presidential triumph.  House Republicans were maneuvered into a no-win, position, and were forced to accept a bill written by Senate Democrats, with advice from the White House, that increased top bracket tax rates, and enabled the President to renege on his “balanced approach” promise of spending cuts.

Also included in the fiscal cliff bill were some 26 tax breaks specifically demanded by the White House that easily qualify as, in Obama’s words, “special interest tax breaks for the well-off and well-connected.”

The only legitimate purpose of taxation is to fund government.  But politicians corrupt taxation by setting tax rates unreasonably high and then offering discounts to taxpayers who behave in politically approved ways.  Thus, they enhance their power, and they gain control over the deployment of more money than they collect in tax revenue.

Of course some, maybe most of the special tax provisions exist only to benefit “well-connected” businesses.  By paying politicians for tax breaks and/or tax punishment against competitors, “well-connected” companies harness the power of government to force better outcomes for themselves than they can earn legitimately, by competing in the free market.

Decades of these corrupt practices have built an incomprehensible federal tax code, a maze of special provisions that mete out carrots and sticks in ways that defy common sense.

What is “Tax Reform”?

The Conservative movement, recently represented by the populist Tea Party, has long advocated tax reform, or deleting special interest deductions and credits, coupled with a reduction in tax rates.  The result of such reform would be a more vibrant economy with more employment opportunity because businesses would pivot from lobbying Congress and the President for special favors to competing in the marketplace by offering better value to customers.

Reformers would set the new, lower tax rates at a level that would generate the same amount of tax revenue as the pre-reform combination of higher rates and myriad deductions and credits.  However, companies would eventually generate more total tax revenue at the lower rates because they would invest their resources in productive activities that would generate more taxable profits, rather than unproductive tax shelters.

But now President Obama has hijacked the term “reform” for his own purposes. Obama’s version of “reform” would not lower tax rates and thus would not spur economic growth or job creation.  He would delete only the tax breaks he calls “loopholes,” those that benefit taxpayers who are out of favor politically, like drug makers and oil drillers. 

He wouldn’t use the L word to describe the special interest tax breaks in the above list.  By insisting on their inclusion in the must-pass fiscal cliff bill he proved that the well-off taxpayers who benefit are indeed well-connected – to the White House and Senate Democrats!