Clos­ing some tax law loop­holes would do more harm than good

Austin American-Statesman - - BALANCED VIEWS - Wein­berg is a No­bel Lau­re­ate in physics, who pre­pares his own in­come tax re­turns


the cur­rent panic over the ap­proach­ing fis­cal cliff, con­ser­va­tives have sug­gested that tax rev­enues can be in­creased, with­out rais­ing tax rates on the wealthy, by clos­ing or lim­it­ing loop­holes, such as the de­ductibil­ity of char­i­ta­ble con­tri­bu­tions and state taxes. This is disin­gen­u­ous — clos­ing this sort of loop­hole can­not bring in rev­enue com­pa­ra­ble to what would be pro­duced by restor­ing higher tax rates on large in­comes, and if it could, it would not be be­ing pro­posed by Repub­li­can mem­bers of Congress. But apart from arith­metic, there are pow­er­ful rea­sons for keep­ing some loop­holes open.

Elim­i­nat­ing or lim­it­ing the de­duc­tion for char­i­ta­ble con­tri­bu­tions would threaten a dis­tinc­tive and pre­cious fea­ture of Amer­i­can life, the in­de­pen­dence of our in­sti­tu­tions. To take one ex­am­ple of spe­cial in­ter­est to univer­sity pro­fes­sors like my­self, most of our lead­ing univer­si­ties were founded and are in large part sup­ported by pri­vate char­i­ta­ble con­tri­bu­tions. Even our great state univer­sity sys­tems, like those of Cal­i­for­nia and Texas, de­pend heav­ily on pri­vate con­tri­bu­tions, and would not be what they are with­out the com­pe­ti­tion for fac­ulty and stu­dents they face from pri­vate univer­si­ties.

Th­ese univer­si­ties, pri­vate and pub­lic, play an es­sen­tial part in keep­ing our econ­omy in­no­va­tive and well staffed. Like­wise, our mu­se­ums, sym- phony or­ches­tras and hos­pi­tals are largely sup­ported by pri­vate con­tri­bu­tions, and our churches en­tirely so.

Yet much of the sup­port for th­ese con­tri­bu­tions comes in­di­rectly from the U.S. government — specif­i­cally, from the avail­abil­ity of un­lim­ited de­duc­tions for char­i­ta­ble con­tri­bu­tions on our fed­eral in­come tax re­turns. We in the U.S. have thus worked out a happy de­vice that al­lows pub­lic sup­port of ed­u­ca­tional, artis­tic, med­i­cal, sci­en­tific, and re­li­gious or­ga­ni­za­tions with­out the heavy hand of government con­trol. But this de­vice is in dan­ger of be­ing lost in an ill-con­sid­ered rush to close loop­holes.

It may be ar­gued that tax con­sid­er­a­tions are not im­por­tant in mo­ti­vat­ing char­i­ta­ble con­tri­bu­tions. This is an odd ar­gu­ment to come from eco­nomic con­ser­va­tives, who claim that only large cash re­turns can mo­ti­vate in­vest­ment or in­no­va­tion.

An­other loop­hole that should be kept open is the de­duc­tion for state in­come taxes (or, as a sub­sti­tute in some states, for sales taxes). Our states are driven to low tax rates by com­pe­ti­tion with each other for pri­vate in­vest­ment, of­ten at the cost of im­por­tant pub­lic ser­vices (in­clud­ing higher ed­u­ca­tion). Be­ing able to deduct state taxes on our fed­eral tax re­turns helps to make state taxes palat­able, thus in ef­fect fun­nel­ing fed­eral money to the states, with­out sub­ject­ing the states to fed­eral con­trol.

We do need in­creased tax rev­enue, to im­prove ed­u­ca­tion, health, in­fra­struc­ture, ba­sic re­search and much else. Rather than drop­ping de­duc­tions, we ought to re­store higher tax rates for large in­comes. There are also loop­holes for cor­po­ra­tions that ought to be closed, such as the spe­cial treat­ment of the oil in­dus­try. One loop­hole for in­di­vid­ual tax­pay­ers that should be elim­i­nated is the spe­cial treat­ment of in­vest­ment in­come. It dis­torts the bal­ance be­tween con­sump­tion and in­vest­ment, a bal­ance that ought to be set by free mar­ket forces.

In­creas­ing taxes on up­per brack­ets and on in­vest­ment in­come is op­posed by con­ser­va­tives as an at­tack on “job cre­ators.” But it is con­sumers that are the real job cre­ators. Cor­po­ra­tions are awash in cash and can bor­row more at low in­ter­est from banks. Where they do not hire more work­ers it is be­cause con­sumers lack the money to pur­chase the goods that would be pro­duced.

Clos­ing loop­holes ap­pears like an at­trac­tive idea, but not all loop­holes should be closed, and clos­ing those that should be closed can­not take the place of restor­ing a tax sys­tem that is fair and pro­gres­sive.

A neigh­bor of an ur­ban farm in East Austin com­plained about a foul odor coming from the vicin­ity, rais­ing is­sues about the trend of such farms tak­ing root in long-stand­ing neigh­bor­hoods.

Tam Thompson: The neigh­bor­hood needs to get over it and start valu­ing peo­ple who pro­duce food. There are na­tion­wide short­ages of food al­ready due to all the wild weather and droughts/flood­ing.

Dave Cortez: Peo­ple don’t “get over” gen­tri­fi­ca­tion. Even if it is some­thing as com­mend­able as sus­tain­able food farm­ing. Col­lab­o­ra­tion and ed­u­ca­tion are im­por­tant in or­der to avoid di­vi­sions.

Rose­marie Chris­ten­berry: I would love to visit her farm,

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