Thursday, September 08, 2005

Katrina and pending tax issues

Okay, back into my cage of discussing issues in my area of professional expertise rather than spouting off about public affairs. So here are some quick thoughts on tax policy issues affected by Katrina:

1) The Tax Reform Commission has postponed its final hearings and the date for release of its report. I didn't think that tax reform would be going anywhere anyway, so its chances of enactment in the near term weren't hurt by the effect on legislative agendas generally (the chance of something happening can't slip below zero). Given what I have heard about some of the really good people who are working out of the public spotlight on the report, I am hoping that the TRC will come up with something that exercises influence down the road, as a blueprint for reform that possibly has a consumption tax component. Perhaps David Bradford's X tax? (I am hoping that the Graetz plan, which I criticized in earlier posts, has lost steam as people became aware of its missing elements.) But even apart from all the other obstacles, such as interest group opposition and lack of strong public support, I think that a 1986-style bipartisan process would be necessary, which I certainly don't see happening any time soon.

There actually has been a minor shift towards bipartisanship lately. But it has been of exactly the wrong kind. The grotesque highway bill represented boodle for everyone in Congress, Democrats as well as Republicans, in contrast to recent tax bills and the energy bill that tended to reserve it for the Republican majority. Needless to say, the Democrats proved more than willing in the highway bill to be just as craven as the Republicans.

2) This brings me to topic 2, income tax policy responses to Katrina. My guess is that a bipartisan process of corruptly giving handouts to campaign contributors and calling it Katrina relief will rule the day. E.g., the Republicans give billions of dollars to energy companies and pretend that this is a response to Katrina. But rather than use their usual playbook of the last few years - putting a dishonest label on something and then trashing the Democrats if they oppose it ("They're against Katrina relief!"), perhaps this time the strategy, given Bush's political weakness on Katrina, will be to give enough Democrats enough pork that the bill will pass by bipartisan acclamation. So I anticipate a disgusting multi-billion dollar giveaway that masquerades as a response to the people hurt by Katrina and the need to rebuild but that in fact is nothing of the sort.

3) A further response to Katrina that has been floated is lowering the federal excise tax so that gas prices ostensibly won't rise as much. This is exactly the wrong response, given the widespread view among experts (extending, if I am remembering correctly, to the likes of Martin Feldstein) that higher gasoline taxes would be desirable, and would to a large degree be borne by foreign resource owners given US monopsony power in the worldwide energy markets as a big consumer. But if oil companies' economic experts conclude that a lower federal excise tax would be a windfall to them, rather than to consumers, one can bet that Congress will follow their bidding.

4) Estate tax repeal does seem to have been pushed back by this, notwithstanding Grover Norquist's pathetic and disgusting effort to portray it as a response to Katrina. Ed McCaffery has been writing about how Congress's fondest desire on the estate tax, shared on both sides of the aisle, is to keep on postponing the final decision so people have to keep on lobbying. As per my earlier post, I am pretty much on the fence regarding the estate tax, although repealing it without doing anything else to replace the revenues would be insanity in the present budgetary context. I have long thought that the most sustainable political equilibrium here would be to retain the estate tax but with a much higher exemption amount so that it really is a hit just on huge fortunes. And I think this is what a sane bipartisan process would likely yield, whether or not it is one's own preferred policy. But again, the only bipartisanship on view for several years has involved making looting and giveaways a bipartisan process.

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