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Cantor Spells Out Possible Tax Compromise
Wall Street Journal ^ | July 6, 2011 | Corey Boles and Kristina Peterson

Posted on 07/06/2011 12:58:35 PM PDT by Zakeet

A top House Republican leader suggested a way to end a stalemate over taxes in the debt-ceiling negotiations, saying Wednesday that Republicans could endorse ending some business tax breaks targeted by Democrats if they also agreed to renew other business-backed tax benefits.

The proposal by House Majority Leader Eric Cantor (R., Va.), which was described in a briefing with reporters, represents a new wrinkle in the ongoing budget discussions.

In recent weeks, Democrats have pushed for raising revenue by closing a raft of corporate tax breaks and benefits as part of a potential deficit-reduction deal that would ease the passage of a required increase in the federal borrowing limit. Such proposals include tax benefits currently available to owners of corporate jets, yachts, thoroughbred horses, ethanol fuel producers and the largest oil and gas companies.

Until now, senior Republicans have said those measures could only be addressed in the context of overhauling the entire tax code, which most political analysts don't expect this year. Mr. Cantor said he would be open to including closures of such tax benefits as long as Democrats go along with renewing popular business tax benefits such as the research and development tax credit.

Brad Dayspring, Mr. Cantor's communications director, listed several other examples, including extending a one-year payroll tax credit for employees.

It is unclear whether Democrats would go for Mr. Cantor's proposal, or if they would continue to insist that tax breaks for corporations be ended in exchange for the deep spending reductions Republicans are pushing for in a deficit-reduction deal.

(Excerpt) Read more at online.wsj.com ...


TOPICS: Business/Economy; News/Current Events; Politics/Elections; US: Virginia
KEYWORDS: 112th; budget; cantor; debt; federalspending; spending; taxes
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To: Zakeet

Getting rid of tax bennies like the corporate jet tax bennie - otherwise known as the no-millionaire-without-a-jet-bennie - is not a quote-unquote “tax increase” regardless of the fact that it would probably increase some revenue. It is removing distortions and inefficiencies in the tax code that are, by and large, arbitraged by individuals who either would have engaged in the activity in question anyways - i.e., didn’t need the incentive of a tax bennie - or else engage in uneconomic activities for the sake of capturing the tax bennie - i.e., engaging in distortionary activity.

Most of those items on the list included in the post here on FR - tax bennies on corporate jets, corporate yachts, ethanol production (also known as the starve-a-third-world-kid tax credit) - are stupid, distortionary tax bennies that should be gotten rid of in any event. The class of tax bennies for “the largest oil and gas companies” is too nebulous to weigh one way or the other (e.g., if it’s a matter of getting rid of the depletion allowances for oil fields, that is just silly talk; if it’s some sort of other tax credit, that may be something to get rid of).

In fact, the complaining shouldn’t be that these items are on the cutting block, it should be that plenty of other items, like the R&D tax credit - as well as the so-called green credits that a-holes like Al Gore are merrily milking for their own private gain - are not on the chopping block.


41 posted on 07/06/2011 2:02:07 PM PDT by Oceander (The phrase "good enough for government work" is not meant as a compliment)
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To: sheana
Yeah but I want them all gone,

In politics, as in life, if you insist on getting everything you want, and never settle for anything less, you'll end up getting nothing.

Don't make the perfect the enemy of the good, for we do not live in a perfect world.

42 posted on 07/06/2011 2:04:48 PM PDT by curiosity
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To: screaminsunshine

She said weeks ago that they would raise the debt ceiling, some one was trying to get her to comment on it, they will do what they are going to do. She recognized that what she said would make no difference.

Future comments I am sure will be less muted.


43 posted on 07/06/2011 2:09:45 PM PDT by itsahoot (Fair warning--I will vote for Palin, if I have to write her in. --He that hath an ear, let him hear.)
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To: Oceander
Good post. I agree with everything except your position on the R&D tax credit.

It has been demonstrated empirically that corporate R&D has large spillover effects not captured by the corporation funding it. As a result, without some subsidy, corporations will tend to underinvest in R&D. The tax credit is one way of correcting this problem.

In some sense, we do have a revenue problem, in that we don't have sufficient economic growth. Economic growth, in turn, is mostly driven by innovation. Hence creating incentives for innovation, such as with the R&D tax credit, should be at the top of the conservative agenda.

Of course, there are other ways to consider as well.

44 posted on 07/06/2011 2:11:36 PM PDT by curiosity
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To: curiosity

No matter what you call them people know what a tax increase is, besides the MSM will be there to goad them along.


45 posted on 07/06/2011 2:15:19 PM PDT by itsahoot (Fair warning--I will vote for Palin, if I have to write her in. --He that hath an ear, let him hear.)
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To: curiosity
"What's going on" is....the big lobbyists from Real Estate, banking, etc. (as well as millionaires/billionaires) demand keeping those "deductions" as their way to prosperity and keeping the rest of us paying more as the price for their support.

Time to let Congress know that lowering tax rates is what we're after NOT deductions that many Americans don't use, though lots of us do take advantage of merely as a way to lower our overall rates.

46 posted on 07/06/2011 2:20:33 PM PDT by zerosix (native sunflower)
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To: itsahoot
No matter what you call them people know what a tax increase is

I really don't care what you call them. If you want to call the elimination of special interest tax deductions a tax increase, I'm fine with it, and I support it. I don't worship at the altar of Grover Nordquist, and I'm not interested in semantics.

I unabashedly support tax increases on people who are getting special tax treatment as a result of having bought off some politicians.

Do you really think it good policy to allow hedge fund managers to get away with paying only 15% on their performance-based pay when everyone else has to pay 35% on theirs?

47 posted on 07/06/2011 2:22:54 PM PDT by curiosity
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To: zerosix
"What's going on" is....the big lobbyists from Real Estate, banking, etc. (as well as millionaires/billionaires) demand keeping those "deductions" as their way to prosperity and keeping the rest of us paying more as the price for their support.

You're half right. Special interest groups, such as hedge fund managers, buy off politicians, who then give them special tax treatment. However, it's not the rest of us paying, at least not today. It's our kids who are paying, as these tax expenditures are being financed with debt.

That's why I'm okay with eliminating tax expenditures without immediately lowering tax rates, though, of course, I would take lower tax rates if I could get them.

The trouble is, we'll never get lower tax rates as long as the Dems control the Senate and the White House.

Why not take this deal down, spending cuts and the elimination of some tax expenditures, and then make lower rates a theme of the campaign in 2012?

48 posted on 07/06/2011 2:31:20 PM PDT by curiosity
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To: curiosity
Economic theory says it (a trade of tax breaks for significant "spending reductions") is objectively good for the long-run as well.

Again - if wishes had wings.... it won't happen because Democrats will not ever let it. They have a billion dollars in the bank and an army of union thugs to fight even a reduction in the rate of spending increase. What does the GOP have? Yeah. An army of testicularly-challenged invertebrates. Except for some of the women, strangely enough.....

If they win a majority in the future, they will be able to do that (institute tax increases) regardless of whether we take this deal or not.

What will they do after they have bankrupted the nation? And that is where we are headed - not in some distant future, either, but soon and yes, intentionally (thank you, Uncle Saul!). When the Fed loses control of their near-zero interest rate regime (and they will) our debt service expenses will exceed not only tax collection rates but will consume an enormous quantity of America's GDP. Hello, Greece! You must try our souvlaki. And then some ouzo. Trust us: you'll need it.

If you really believe that, then there's no point for you to even try to get spending cuts.

Please provide me with one example of where Democrats have ever approved a reduction in spending (other than Defense) that lasted longer than one year (oops, there goes Defense, too...).

Enough fun. Look: what we have here is the perennial allegory for American politics: Charlie Brown, Lucy, and the football. Hope triumphs over experience, and frankly - it hurts a little more each time.

49 posted on 07/06/2011 2:36:44 PM PDT by andy58-in-nh (America does not need to be organized: it needs to be liberated.)
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To: curiosity

It’s a problem because it RAISES TAXES.

Regan got suckered into it.
Bush 1 got suckered into it.
Other (R)s got suckered into it.

Every time a tax increase of any kind anywhere is accepted by Republicans as a precursor to overall tax reductions, the overall tax reductions NEVER HAPPEN.

You think your income tax rate will be decreased in return for eliminating your mortgage deduction?
You think spending will be cut and tax rates reduced in return for eliminating deductions?
...you haven’t been at this game for long, have you?

If you agree to an increase in taxes ANYWHERE, they will NOT decrease spending or rates. PERIOD. Proven over and over in US political history. They win, they get more money to spend, they have no incentive to cut spending.

Refuse to raise taxes, anywhere, at all, and they MUST cut spending somewhere - because there will be no money to spend (eventually, even borrowed or printed money).

NO NEW TAXES.
NO RAISED TAXES.
DRAW THE LINE ALREADY.
Or get suckered into the same trap again.


50 posted on 07/06/2011 2:42:16 PM PDT by ctdonath2
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To: curiosity

Eliminating deductions = raising taxes.

It may be a very narrow tax increase, but it’s a tax increase nonetheless.


51 posted on 07/06/2011 2:43:32 PM PDT by ctdonath2
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To: curiosity
Well, I have found over my many years' involvement in politics, that "we" give in order to get, they get, and get, and get --- and NEVER, ever give.

Don't give anything unless and until they've locked it in - permanent style.

Case in point: 1984 Simpson-Masoli Bill, Reagan signed to "give" 3 million illegals amnesty, with the provision that no more be allowed to jump the border, get jobs, etc.

What we got as 3+ million illegals becoming citizens, bringing casts of more millions family members, congress not enforcing bill to stamp out jobs for illegals.

Nope, no more "giving in order to get!" Not now, not ever!

52 posted on 07/06/2011 2:47:44 PM PDT by zerosix (native sunflower)
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To: itsahoot; curiosity; Oceander
It has been known for over six months that there would need to be broad points of a compromise for the government to continue to operate.

1. Someone will be paying more in taxes.

2. Some Federal agencies and programs will be eliminated.

3. The Debt Limit will have to be raised by some amount.

The fighting is over the details in each of these broad points. Some of the suggestions put forward are good, some not so good.

1. I support eliminating some of the special interest deductions. Corporate Jets, Horses. Do not support others, Oil and gas companies. I also know that the deductions I support eliminating will not bring in that much extra revenue to the Government (I have seen estimates for the Horse deduction of under $1Mill)

2. I am worried in that I have seen no discussion of what programs will be on the chopping block. The Congress needs to understand that if the cuts are not made before the end of this fiscal year and continued through the next I do not consider them to be cuts. Baseline accounting must be eliminated.

3. I like Bohner’s formula. For every dollar of cuts we raise the ceiling by one dollar. However given my restricted definition of cuts, ten times the amount of spending cut from the budget for the rest of the year and not restored in next year's budget would be the amount I would use.

53 posted on 07/06/2011 3:00:36 PM PDT by Fraxinus (My opinion, worth what you paid.)
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To: curiosity

Without getting into too much of a discussion right now, I googled around a bit, and while there are any number of papers that discuss the subject, very few of them are really grounded in rigorous examinations of the overall net effect of using R&D tax credits, and the results seem to be all over a substantial portion of the map, so to speak, depending on which measurement methodology is chosen.

In particular, the assertions of the so-called “special” nature of R&D expenditures and the claims that here, more so than in any other area of economic endeavour, R&D producers are qualitatively less capable of capturing the economic benfits of their R&D work seem to me to be more conclusions in search of an argument than arguments that justify the R&D credit.

Finally, one paper I came across - an OECD study - pointed out that two Scandivian countries (I think Sweden and Norway) had substantial R&D being done even though they did not provide a credit or other form of subsidy for R&D work; the OECD paper did rather obliquely refer to the fact that these two countries also had rather low corporate income tax rates. That suggests that a tax credit may not, in fact, be an efficient way of incentivizing R&D work.

Finally, I did not come across any dicussions about whether or not all R&D work was equally useful and beneficial to society. It strikes me that part of the analysis of the net economic benefits of R&D credits would have to consider the extent to which the credit encourages specious R&D “work” that ought not to have been done in the first place. Instead, the papers I came across all seem to accept as a postulate the belief that R&D is an absolute good.

So, while I acknowledge your point, and there are indeed studies of that sort out there, I am as of yet not fully convinced that the distortions and costs imposed by the R&D credit do not outweigh the benefits thereof.


54 posted on 07/06/2011 3:03:53 PM PDT by Oceander (The phrase "good enough for government work" is not meant as a compliment)
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To: curiosity
So you think special interest tax subsidies, like the tax credit for ethonal production, are good?

Hell no. Where did you ever get the idea that I opposed the elimination of special interest deductions? I'm in favor of $1.6 trillion in spending cuts for the next fiscal year. Do you have a problem with that?

55 posted on 07/06/2011 4:00:24 PM PDT by Hoodat (Yet in all these things we are more than conquerors through Him who loved us. - (Rom 8:37))
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To: Oceander
While you are correct that there is no consensus as to the effectiveness of the R&D tax credit, there is strong evidence that R&D creates large spillover effects not captured by the firm that pays for it.

I am certainly open to the possibility that there are better ways of incentivizing R&D, and that the tax credit isn't a very good way of doing so.

What alternatives do you favor?

56 posted on 07/06/2011 4:01:35 PM PDT by curiosity
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To: zerosix
Well, I have found over my many years' involvement in politics, that "we" give in order to get, they get, and get, and get --- and NEVER, ever give.

I don't consider the elimination of tax expenditures, such as the ethanol tax credit or absurdly short deprecation lives of corporate jets, as an act of giving in to democrats. Elimination of such tax expenditures is good policy. Period.

The fact that democrats favor a certain policy does not automatically mean it is bad.

57 posted on 07/06/2011 4:07:33 PM PDT by curiosity
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To: Fraxinus
1. I support eliminating some of the special interest deductions. Corporate Jets, Horses. Do not support others, Oil and gas companies.

Seriously? So how do you defend the percentage of sales depletion rule, which allows oil and gas companies to claim depletion deductions over the life of an oil field that exceed their cost of acquiring the extraction rights? On what grounds do you defend the manufacturing tax credit?

I also know that the deductions I support eliminating will not bring in that much extra revenue to the Government (I have seen estimates for the Horse deduction of under $1Mill)

That's also true of the deductions you don't support. If they don't really bring all that much revenue in, what's the harm in supporting them if they get us big spending cuts in return?

2. I am worried in that I have seen no discussion of what programs will be on the chopping block.

I agree with you. We need to make sure any cuts that we do get are real before signing off on any deal, and they need to be specific.

58 posted on 07/06/2011 4:16:13 PM PDT by curiosity
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To: curiosity

I’m still trying to get more comfortable with the premises for the need to incentive R&D first, and also the particular transactional costs (in the economics sense of the word) that might be reducing the efficiency of the markets as they relate to R&D activities.

In particular, I grant the spillover effect - the R&D produced by Firm A not only provides a benefit to Firm A, it also provides a benefit to Firm B even though Firm B had nothing to do with the R&D - and the argument that Firm A thus does not capture all of the benefit produced by its R&D efforts; however, I am not fully sold on the view that this effect is somehow qualitatively different for R&D than it is for any other good.

For example, it seems to me that there is a spillover effect from all manner of other activities, wherein the firm undertaking the activity - paying for it - does not capture all of the benefits accruing from that activity.

Take auto mechanics, for example. Suppose that I’m an auto mechanic who works on sedans. The more sedans the auto manufacturers make, the better off I am, not the least because, with the greater demand for my services occasioned by the greater number of sedans around, I can increase my per-unit price and still sell as many hours of labor as I did before. And all of that may take place even as the per-unit cost of each sedan is dropping because the marginal costs of production are dropping.

Now, I’m happy to be corrected, but it seems to me that the benefit accruing to me from the auto-building activities of the auto manufacturers constitute a benefit arising from those activities that the auto manufacturers are not capturing.

On that view of things, since there are similar spillover effects in all walks of life, the argument that firms cannot capture all of the benefits occasioned by their R&D activities does not really justify an R&D-specific incentive such as a tax credit.


59 posted on 07/06/2011 5:26:22 PM PDT by Oceander (The phrase "good enough for government work" is not meant as a compliment)
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To: curiosity
You are indeed correct on the subject of Ethanol for I have long been opposed to that sucking at the public trough in favor of the corn-growing states (and I live in one such state that Bob Dole pushed at Newt referred to as "Senator Ethanol.")

As to the corporate jet stuff, it's a bit of a mystery for Obama himself proposed such a deduction - now he's using the subject as a straw man. What's up with that?

The facts are that there is such a paltry sum deducted for the jets yet the Ethanol subsidies and farm subsidies add up to quite a tidy sum.

60 posted on 07/06/2011 8:15:52 PM PDT by zerosix (native sunflower)
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