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Veterans Hiring Bill Indicative of Impossibility of Eliminating Tax Expenditures

Within the hour, it’s likely that the veterans hiring measure, which offers tax credits of up to $9,600 to businesses for hiring returning veterans, will pass the Senate, attached to a measure that makes it easier for government contractors to cheat on their taxes. Two things stand out with the passage of this.

Obviously, it wasn’t the intention of the White House to only pass the veterans hiring initiative; it was folded into a broader bill that offered tax credits for all hires. But the practical effect of offering a big sum of money to a company to hire a veteran is that a veteran will get privileged in hiring decisions over a non-veteran, when a position needs to be filled. I can’t see how this would boost employment in any way, just favor one type of applicant over another. That’s decent news for veterans, but bad news for anyone who didn’t go into the military.

The second, and more consequential, part of this is that it shows how Washington is simply used to handing out tax credits like candy. The Super Committee is supposed to be deliberating about “cleaning up the tax code” and clearing out the underbrush. At the same time as that discussion is happening, more underbrush is being created. This is why a discussion of taxes ultimately has to go to rates. Tax credits have a way of coming back.

Tax experts say the hiring credit is a particularly stark example of how irresistible the tax code has become for politicians seeking to advance popular policy goals. And, they say, it shows how difficult it would be to weed out popular credits and deductions.

“It’s ironic, and it’s incongruous,” Steve Bell, senior director of the economic policy project of the Bipartisan Policy Center, said of consideration of a new tax credit while tax reform gains steam.

“Tax entitlement reform will be tougher than direct spending entitlement reform,” he added. “Because they all got in there for a reason .?.?. They got in there because big groups of people benefit from them.”

While the Bipartisan Policy Center isn’t my favorite think tank in Washington, they happen to be correct on this point. Spending in the tax code is directed spending. It goes to a specific beneficiary. That beneficiary has a major interest in holding onto its tax break. If they lose it, they look for another way to put something in the tax code. It’s not considered spending because it doesn’t go down as spending, but it has the exact same effect.

So if we get to some tax reform where the rates go down and the base gets broadened, in ten years we’ll be back to talking about further “reform” because over those five Congresses, hundreds if not thousands of privileged tax expenditures will have been tossed into the mix. Tax expenditures come back endlessly. If you’re not dealing with tax rates, you’re not dealing with taxes.

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David Dayen

David Dayen