Closing some tax law loopholes would do more harm than good
In
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,