Fools for Loopholes

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By FB Kirkland Real Estate

Republicans hate earmarks, but they love loopholes. Even though loopholes are earmarks on steroids, Republicans and loopholes go together like big contributions and special favors in return for big contributions. Take former Republican Senate Leader and GOP 1996 Presidential Nominee Bob Dole. According to an article in the Chicago Tribune, Dole repeatedly rigged the tax code to benefit his benefactors:

Among the hundreds of tax loopholes introduced or supported by Dole that fell under the rubric of "corporate welfare," one of the most blatant was a tax break he helped craft for the Ruan Trucking Co. of Des Moines. Chairman John Ruan, his family and his corporation are generous contributors to various political funds overseen by Dole. Dole co-wrote an amendment to the 1986 Tax Reform Act specifically exempting "a privately held truck leasing company headquartered in Des Moines" from certain terms of the repeal of the investment tax credit. Estimated savings for Ruan: $8.5 million.

"Between 1993 and April 1995, according to (Federal Election Commission records), Dole flew 187 times on corporate jets owned by his corporate clientele, most of whom had a vested interest in legislation pending before the Senate at the time of the flights." The Archer Daniels Midland Corp. plane fleet, on which he flew 29 times during that period, "is basically at his beck and call."

ADM, also responsible for substantial cash contributions to Dole's causes, is the nation's largest producer of ethanol--Dole was long Congress' most ardent supporter of ethanol subsidies.

Dole's defenders claimed this was "business as usual" and shrugged off apparent quid-pro-quo deals that cost taxpayers and the economy hundreds of billions of dollars. Sadly, this is typical of free-spending, favor-giving deficit chicken hawks.

During the 2008 Presidential election, Americans constantly heard about the horrendous threat of earmarks. GOP Nominee John McCain ranted about them almost as much as Rudolph Giuliani obsessed about 9/11. The Washington Post Fact Checker blew the whistle on McCain's pseudo-crusade for sound fiscal policies:

The Arizona senator is promising to balance the budget by the end of his first term, while simultaneously extending the George W. Bush tax cuts, introducing billions of dollars of new tax cuts of his own, and remaining in Iraq as long as is necessary to stabilize that country. Asked how this miracle will be accomplished, McCain told George Stephanopoulos of ABC News This Week on April 20 that he could come up with $100 billion "tomorrow" by vetoing pork-barrel spending bills. ...

The Office for Management and the Budget came up with a figure for $16.9 billion [for earmarks] in the 2008 appropriation bills. Taxpayers for Commonsense, an independent
watchdog group that focuses on wasteful spending, identified $18.3 billion worth of earmarks in the 2008 bills, a 23 per cent cut from a record $23.6 billion set in 2005.

How much of this $18.3 billion could be eliminated is a "difficult question that we have not yet figured out," said Taxpayers for Commonsense vice-president Steve Ellis. The figure includes such items as $4 billion for the U.S. Army Corps of Engineers, which could not be eliminated without halting hundreds of construction projects around the country. Another big chunk goes to military construction, including housing for servicemen and their families, which McCain has also promised not to touch.

Like McCain, Republican House Majority Leader Eric Cantor rails against earmarks, despite their well-established negligible impact on spending. Like Dole, Cantor defends and seeks to expand loopholes. Writing in The Politico, Cantor opined, "the long climb to fiscal responsibility must begin with a few smaller, but necessary, steps." He asserted, "There is no question that earmarks—rightly or wrongly—have become the poster child for Washington's wasteful spending binges. They have been linked to corruption and scandal, and serve as a fuel line for the culture of spending that has dominated Washington far too long. These reasons alone would justify completely eliminating earmarks, but the basis for my position doesn't end there."

If earmarks are that bad, then what does that make loopholes?

Sourcewatch defines earmarking as "the term used to refer to a provision in legislation that directs funds to be spent on specific projects. Typically, legislators seek to insert earmarks that direct a specified amount of money to a particular organization or project in his/her home state or district. This differs from the appropriation of money to a particular government agency, for in these cases the appropriate executive department can exercise discretion as to where and how the funds are spent."

Investopedia defines loopholes as "A technicality that allows a person or business to avoid the scope of a law or restriction without directly violating the law. Used often in discussions of taxes and their avoidance, loopholes provide ways for individuals and companies to remove income or assets from taxable situations into ones with lower taxes or none at all."

Earmarks allow legislators to direct funds to projects. This costs everyone for the benefit of some—estimated at about $17 to $18 billion in a given fiscal year—but includes spending on construction and other projects people need. Earmarks also create jobs and boost the economy. Just because someone calls something an earmark doesn't mean it's unfair or wasteful. On the other hand, loopholes cost taxpayers—and run up the National Debt—much, much more while delivering special favors to well-connected special interests.

According to a headline in the ABC News Blog The Note, Republican Leader Cantor claims he's "open to closing tax loopholes," but only if they're "met with more tax cuts." Cantor said, "preferences in the [tax] code aren't something that helps economic growth overall. But, listen, we are not for any proposal that increases taxes, and any type of discussion should be coupled with offsetting tax cuts somewhere else." He dismissed "the revenues that [President Obama] is talking about [such as] the depreciation scheduled for corporate-owned jets." He conceded that single loophole costs taxpayers "about $3 billion over 10 years." If that's the example he chose for an inexpensive loophole, imagine all the expensive loopholes Cantor chose to not mention!

In any case, Cantor's willingness to trade existing loopholes for new ones is typical beltway baloney. Loopholes are custom-made tax cuts for special interests powerful enough to push them through Congress. Every penny given away via a loophole must be borrowed (adding to the National Debt and Deficit) or else paid for with tax hikes. Republicans hope we're too confused to understand that swapping some special deals for others can never solve the problem! This is rank hypocrisy from Cantor, who rails against earmarks but defends loopholes.

Eric Schurenberg wrote in The Fiscal Times, "Individual and corporate tax expenditures now cost the U.S. Treasury more than a trillion dollars a year and account for a third to a quarter of all government benefits and subsidies—without being subject to annual appropriations review. Once a tax break is in the tax code, it continues until specifically excised." He observed, "Lawmakers have to concede that tax credits, deductions, tax deferrals and preferential rates are not the opposite of government spending. They are, as [economist Martin] Feldstein puts it, government spending by another name.' Any serious deficit plan must put them on the table." Since the Republicans refuse to discuss closing loopholes unless they can open new ones, their deficit plan is not serious.

What are some of the loopholes Republicans protect so stubbornly? In a follow up Fiscal Times article, Schurenberg explained, "private equity and hedge fund managers get to treat their income as capital gains and pay the 15% gains rate. Talk about perverse consequences: [Wall Street hedge-fund maestro John] Paulson, who earned between $3 billion and $4 billion in 2008, paid taxes on much of those earnings at a lower rate than his limo driver and maid. The cost to taxpayers: $9.7 billion between 2012 and 2016, according to the CBO." Add to that "employer paid premiums for health coverage, which will cost the Treasury $1 trillion between 2012 and 2016."

Some loopholes cost the U.S. as a moral hazard as well as in lost dollars. Again from The Fiscal Times article: "Writeoffs for White Collar Criminals. It's not easy to convince a court to award punitive damages against a misbehaving business. But when you do, the tax code allows the company to deduct those penalties as an ordinary business expense. 'This is wrong,' says Vermont Senator Patrick Leahy, who has introduced legislation again this year to change the law. 'It undermines one of the primary deterrent functions of our civil justice system.' Criminal negligence may indeed be ordinary business for a company like Massey Energy, owner of the Big Branch mine where 29 miners died in a preventable explosion last year. But taxpayers shouldn't have to subsidize it. Cost: $315 million over 10 years." Republicans protect the "right" of corporate criminals to make all of us help pay their fines, while demanding deep cuts in nutrition programs for children. These are their priorities.

The prohibition on Medicare negotiating drug prices is one of the biggest special favors going. Although not technically a loophole, ending this massive give-away would deliver huge savings for taxpayers. The National Committee to Preserve Social Security & Medicare reports, "The Department of Veterans Affairs (VA) achieves significant discounts on generic and brand-name prescription drugs by negotiating directly with pharmaceutical manufacturers on behalf of its five million beneficiaries. One study by Congressional Budget Office (CBO) found that, on average, the VA pays only about 42 percent of the Average Wholesale Price (AWP)—or the suggested list price—for brand-name drugs." The Committee cites a report by economist Dean Baker of the Center for Economic and Policy Research estimating hundreds of $billions in savings annually.

Republican leaders, including House leader Eric Cantor and their last Presidential Nominee John McCain, demand we eliminate earmarks. They promise doing so will balance the budget and otherwise cure our economic ills, but they block efforts to close loopholes on luxuries like corporate jets and huge giveaways to hedge-fund mavens, big drug companies—even corporate criminals—at taxpayers' expense.

Closing loopholes and ending other giveaways would save taxpayers well over a trillion dollars each year. Cutting wasteful weapons spending, winding down the wars in Iraq and Afghanistan, and calling off conflicts elsewhere would save even more trillions. Letting the unfunded, counter-productive Bush tax cuts expire would save yet additional trillions.

Together, these measures would balance the budget over the next several years and would also let us make needed investments in infrastructure, education, healthcare, and other human needs. This sound fiscal judgment is found in the People's Budget, sponsored by Congressional Progressive Caucus, and authored by CPC Co-Chairs Raul Grijalva and Keith Ellison. So why aren't the "deficit hawks" all aboard this train to prosperity? And why aren't the media praising this common sense approach to paying down debt while creating good, green jobs?

The People's Budget languishes in obscurity. Meanwhile, pundits and reporters heap praise on Paul Ryan, John McCain, Eric Cantor and other fiscal phonies who engineer massive loopholes to reward their fat-cat contributors. In return for millions of dollars in gifts, these Republican beltway bandits deliver trillions of dollars of our money to their buddies. This exposes all their bleating about earmarks and deficits as disingenuous duplicity. If Republicans ever get serious about deficits and debt, they'll turn all the sound and fury they've misdirected at earmarks toward closing—rather than shifting or creating—these costly, gaping loopholes. Until then, all their protestations are just a conservative con job.

President Obama and the Democrats should slam shut as many loopholes as they can find and dare the Republicans to defend these goodies for the greedy on a case-by-case basis. With all the savings, we could lower the deficit and protect Social Security, Medicare and Medicaid. We could rebuild America, roads, bridges, schools, dreams and all. Call your Senators and Congressmember—Democrats and Republicans alike. Demand they vote to close these outrageous loopholes and pass the People's Budget: a progressive, common sense solution to the trumped up debt ceiling crisis. Then we won't need to sacrifice any programs to entice Republicans to increase the debt ceiling. We won't need more debt at all. Isn't that what Republicans say they want?

Mike Hersh is a member of PDA's national leadership team. He serves as the social network coordinator and as state coordinator for PDA Maryland.

States - Maryland