Fixing the tax code at the cliff’s edge

By George F. Will,

If you have worked hard for five decades, made pots of money and now want to squander it all in Las Vegas on wine, women and baccarat, go ahead. If, however, you harbor the antisocial desire — stigmatized as such by America’s judgmental tax code — to bequeath your wealth to your children, this would be an excellent month to die. Absent a congressional fix before Jan. 1, the death tax, which is 35 percent on estates above $5 million, reverts to 55 percent on those above $1 million.
This is one of many tax changes that could be triggered. The Hoover Institution’s Tammy M. Frisby, writing in Policy Review, says that — not counting temporary disaster-relief tax breaks — 31, 56 and 37 provisions of the tax code expired in 2010, 2011 and 2012, respectively. “The country,” she says, “is trying to create sustained economic growth using temporary tax laws.” It is not working.

 

Unless Congress quickly reaffirms its follies, this month the tax credit that subsidizes wind power — a long-standing adventure in industrial policy — expires. This is not quite a sufficient reason to go over the “fiscal cliff” but would be a consolation for doing so.
The cliff, an action-forcing mechanism, could cause a constructive chaos of questioning. Is it wise to increase taxes as student debt passes the $1 trillion mark, dampening graduates’ powers as consumers? Two-thirds of them have mini-mortgages (average debt, $27,000). Is it wise to increase the top tax rates, which are paid by small businesses with more than half of small-business income, just as the Obamacare tax (called a mandate until Chief Justice John Roberts’s clarification) produces many “49ers”? Those are businesses that stay below the 50-employee threshold for providing insurance or reduce full-time employees to part-timers. A defense sequester could raise questions about whom — Denmark? Poland? — our 54,000 troops in Germany are protecting Germans against.
Washington, with its (at most) one-track mind, is fixated on the “Bush tax rates” but cannot even accurately describe its monomania. It actually is the Bush-Obama rates. Two years ago, when the economy was, as now, sputtering along barely above stall speed, Obama — joined by 43 Senate and 139 House Democrats — extended the rates for two years because the economy was too weak to absorb large tax increases.
That was then. This is now:
When Sen. Richard Durbin (D-Ill.) said, “Social Security has not added one penny to the deficit,” Charles P. Blahous III, a member of the Social Security board of trustees, wrote to The Post to say that in 2012 this program will add $165 billion to the deficit because benefit expenditures exceed Social Security tax revenue by that amount and “this gap is filled entirely by revenue that the federal government borrows.” The fact that the second-ranking Senate Democrat is off by 16,500,000,000,000 penniesreveals the sort of precise thinking that got the country into its current condition and that supposedly will produce a cure. It is enough to make you want to hop in your Fisker and drive off a fiscal cliff.
You should know Fisker because you have helped to finance the Anaheim, Calif., company that makes — well, has made a few — electric cars. Its only model, the Karma — really; Obama administration green investments are beyond satire — costs $110,000. Your subsidy helped Justin Bieber, the fabulously rich Canadian teenager (he sings), buy one. No one ever said saving the planet one electric car at a time would be easy.
The Wall Street Journal reports that despite Fisker’s $192 million in Energy Department loans, the Karma “has been hobbled by recalls and quality problems” and the company has sacked half its employees. But perhaps Fisker’s biggest problem is that its source of batteries, A123 Systems, has gone bankrupt in spite of its $249 million Energy Department grant. The administration that in the fiscal cliff drama is demanding control of much more of the nation’s wealth is the author of many Solyndra-style debacles.
American politics has generally been about allocating abundance, not scarcity.
It has, however, occasionally confronted issues not susceptible to compromise — e.g., expansion of slavery into the territories. The fiscal cliff argument is about splittable differences — this or that tax rate or entitlement rule — but also about the proper scope and actual competence of government. This necessary argument should not be truncated until the cliff is even closer.
georgewill@washpost.com

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