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Bush Administration Tacitly Endorses More Horrible Tax Policy

Today's Washington Post notes:

[W]hat started as an effort to repeal a $5 billion-a-year subsidy has grown into one of the most significant corporate tax measures in years. The Senate bill, 980 pages long, includes more than $167 billion in business tax cuts over 10 years, handing out favors to NASCAR racetracks, foreign dog-race gamblers, Oldsmobile dealers and bow-and-arrow makers, to name a few. The centerpiece is a tax credit to effectively lower the tax rate on domestic manufacturing from 35 percent to 32 percent.
The "special interest bonanza" is bad enough, but the real problem with the legislation is its reduction of taxes for "domestic manufacturing." The article quotes the Economic Report of the President: "[F]irms would have an incentive to characterize themselves as in manufacturing. Administering the tax relief could be difficult, and the tax relief may not extend to the firms for which it was enacted." [That could] "inadvertently distort production and have unintended and harmful results." For example, "mixing water and concentrate to make a soft drink is classified as a manufacturing activity by the Census Bureau." A tax lawyer at Skadden says her " biggest concern with the proposals that would just penalize certain companies is that we believe that people would quickly find a way around them."

In the face of this abominable legislation – which not only puts another hole in the leaky treasury, but, again, does it in the most destructive manner possible – the administration has remained silent.
But recently, the administration has fallen silent. White House officials refused to discuss the legislation, saying the House bill is a work in progress. N. Gregory Mankiw, the current chairman of the White House Council of Economic Advisers, did not repudiate his passage on the matter in the Economic Report of the President--but he would not discuss it either. Treasury, which holds the core of tax policy expertise in the government, also declined to comment at length.

Yesterday's Washington Post had an editorial on the legislation: Fix this Bill:
"Both bills would do more damage to the economy than the damage that would result from European trade sanctions. Both would squander an opportunity to do needed tax reform and encourage even more brazen special-interest lobbying next time a tax bill comes up in Congress."
The only good thing in this legislation is that it benefits Bourbon distillers.


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