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Cleaning up Politics Through Tax Reform

Campaign finance reform is dead.  Long live tax reform.

The influence of “big money” on national politicians has long been a sticking point for liberal populists, and reforming our political system to “get money out of politics” has been a perennial liberal cause, uniting high minded good government types with union organizers (as long as it is corporate and private money being sidelined, and not labor).

Decades of work and untold millions of liberal foundation money has been spent on limiting corporate donations to political campaigns through campaign finance reform measures (like the McCain-Feingold act) — but the recent Supreme Court decision in Citizens United now has threatened the viability of these efforts.

For all the brouhaha over the Citizens United decision, however, campaign finance reform was never the ideal way to reduce the influence of special interests on politicians. Despite the howling from the commentariat about “opening the floodgates” of corporate money into politics, I have never been able to see how regulating the ability of people to spend their own money on elections is anything but a violation of the most basic of civil liberties.

That doesn’t mean I’m not worried about the mix of political ambition and corporate self-interest.  But it might make more sense to work on this problem from the demand side: reducing the incentive for lobby groups to pump money into politics by reducing the discretionary ability of lawmakers to tinker with the tax system.

Carving out tax loopholes is where a lot of the Washington action is at. From a recent New York Times report:

The Senate Republican leader, Mitch McConnell, for instance, says he is open to ending tax breaks for special interests. But when it comes to a tax break he secured in 2008 for the owners of thoroughbred racehorses, he argues that the measure is essential for the protection of jobs in his home state of Kentucky.

Senator John Kerry, Democrat of Massachusetts, says he too wants to eliminate such breaks, except when it comes to beer. He is one of the main supporters of a proposal that would cut taxes for small beer makers like the Samuel Adams Brewery in Boston. […]

Tax breaks for industries both large and small add up to an estimated $123 billion a year — money that opponents see as lost revenue in austere times.

One of the few members of Congress willing to talk about specific breaks that could be abolished is Senator Tom Coburn, Republican of Oklahoma.

He released a 626-page report in June that included a section on what he considered to be dozens of needless tax breaks that were “little more than corporate welfare,” like vacation home deductions and special deals for the makers of fishing tackle boxes. He also ridiculed a bevy of loose guidelines that have allowed business deductions for cat food, toupees and breast implants for exotic dancers.

If reformers truly want to find a solution to the influence of special interests in politics, they should begin with the tax code, strip out the existing loopholes (reducing rates to make it revenue neutral) and look for ways to make it harder for lobbies and legislators to play games. Over the years, the tax code has become littered with thousands of small exceptions, written by individual politicians to benefit interest groups and political supporters in their state. Beer brewers in Wisconsin, horse farms in Kentucky, Nascar in New York — the countless minor tax exemptions for local businesses have made the tax code confusing and unwieldy, and have given politicians ample opportunity to throw bones to their political supporters at the public  expense.

A reformed tax code with flatter, broader and lower tax rates with fewer exemptions would remove the incentives for interest groups to sweeten politicians through donations. Such a plan could draw bipartisan support — Republicans have long wanted a simplified tax code with lower rates, while Democrats should welcome the closing of loopholes to raise revenue even at lower tax rates.

At the same time, reformers should push to make it much, much harder to carve out new tax loopholes or put earmarks in bills.  The press and public interest groups should name and shame lawmakers who support these breaks and those who vote for them should expect a rash of unfavorable publicity about money paid and favors done.  Reformers should think about ways to change House and Senate rules that make it much harder to attach these proposals to other bills, and perhaps should require super-majorities for any proposal that reduces revenue by any method other than reducing overall tax rates.

The tax base should be as broad as possible and rates on that broad base should be progressive but overall as low as possible, consistent with the health of the Treasury. Reducing the discretionary ability of politicians to earmark and loophole will not eliminate the influence of money in politics (nothing can or perhaps should do that completely), but it will reduce the incentive to bribe.  It will also promote a more transparent debate over tax policy.

Campaign finance reform was a detour.  Tax reform is the way to get real and lasting political reform.  It is a road that many liberals and conservatives could walk together if they tried.  I hope they do.

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  • Scott

    I think your overall point is excellent. However, you lose me when you start suggesting “super-majorities” for certain proposals. I agree that we shouldn’t muck up a tax code should we ever get it simplified. However, requiring a “super majority” is mucking up the concept of “one person, one vote.” Use disclosure and responsible citizenship to keep representatives honest, not gimmicks. Yes, it’s harder and doesn’t always work but it avoids the always lurking beast of unintended consequences.

  • Tom Holsinger

    The sole purpose of increasing tax rates is to sell tax breaks in exchange for campaign contributions to deserving Congressmen and state legislators.

    Tax law professor adage: “When you see a businessman doing something which doesn’t seem to make sense, its’ probably about taxes.”

    Political adages:

    When you see a non-profit organization doing something which doesn’t seem to make sense, it’s probably about fund-raising.

    Non-profit organizations, regardless of their origins, always turn into self-perpetuating entities dominated by their fund-raising staff absent an initial creation requirement that their existence terminate after a set period of years.

  • Toni

    The only way to “reduce the incentive for lobby groups to pump money into politics” is to reduce the incentive for ALL groups, including those Democratic donor mainstays, unions and trial lawyers.

    Of course, this will never pass.

  • Maddog

    Thank you for your thoughtful post. Attempting to bind future congresses with present legislation is a losing proposition.

    I would offer an alternative. Eliminate the 16th Amendment to the Constitution and replace it with one which allows Congress to annually demand a budget appropriation from each state based on its pro rata portion of the population. Since Oregon has 1% of the US population it would be obligated to remit 1% of the annual US budget.

    This would create a problem since the states powers have been eroded by expansion of the Interstate Commerce Clause, among other things, and so the 17th Amendment to the Constitution (Direct Election of Senators) should also be repealed (I would like to see one of the federalism amendments currently being discussed at least considered).

    With states appointing Senators and remitting a pro rata share of the budget appropriation we would see dramatic change to realign power between the states and federal government. This would move the country away from the slowly collapsing Blue State Model to a new and more modern political/economic arrangement.

    Mark Sherman

  • JAY

    By all means eliminate tax loop holes and regulation and subsidies and “targeted investments” and anything else that allows the government to influence the flow of money to the well connected.

  • Jacksonian Libertarian

    All businesses are owned by people, so why are businesses taxed, and then the owners are taxed again on the same income. This double taxation wouldn’t be a problem if we just got rid of all business taxes, as ultimately all taxes are paid by people, and politicians are simply trying to hide the real burden of the Government Monopoly with business taxes (and create opportunities for graft). There would be the added benefits of reduced lobbying efforts from businesses and the corruption it engenders, an end to business tax compliance costs which run $400 Billion for $2.2 Trillion collected for the total economy (I don’t know the business share of the compliance costs, just that businesses pay about $400 billion of the $2.2 collected, and that their share of the compliance costs is much higher than it is for taxpayers, perhaps it would save the economy $200 billion), an end to businesses making economic decisions based on their tax implications instead of their profit potential. Businesses would repatriate billions in foreign profits, pumping job creating capital into the economy’s fuel tank. The price of goods and services would fall at the same time as people would realize the true cost of the burden of the Government Monopoly.

  • Lexwolf

    Just last month, Sarah Palin proposed the elimination of the corporate income tax, along with all deductions, subsidies and other corporate welfare. Solves most of the problem, doesn’t it? Why would big-money corporate types give $millions to the politicians if there wasn’t an expected payoff somewhere down the line? Now, this wouldn’t solve the problem of people like George Soros or the Koch brothers who are motivated by ideology but it would take care of most everybody else.

    Of course, it ain’t gonna happen because she’s so “stupid”.

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