Hatch Sets the Record Straight: "Reducing Tax Expenditures" is a Tax Increase, Plain and Simple


Posted by James Paul on Thursday, July 7th, 2011, 2:17 PM PERMALINK


In a passionate speech yesterday on the Senate floor, ranking member of the Senate Finance Committee Orrin Hatch warned that Democrats are using underhanded tactics to sneak tax increases into a debt ceiling compromise. President Obama is in favor of reducing or eliminating tax credits in order to raise revenue. Unfortunately for taxpayers, this will amount to a tax increase, since these credits allow for Americans to keep more of the money they have already earned. Unless the reduction of these tax expenditures is combined with tax cuts or rate reductions in other places, the federal government will simply be collecting more money from which they can spend on wasteful, inefficient programs.

Yesterday, Sen. Hatch explained how the Democrats are planning to raise revenue:

“President Obama and his liberal allies are calling for a ‘balanced approach’ and a revenue piece to deficit reduction. We hear this from the press all the time: ‘New revenues need to be a part of any deal to reduce the deficit.’ These are simply code words for a tax hike. It is clear that the professional left is insisting that President Obama include tax increases in any negotiated agreement to raise the debt ceiling.”

In recent weeks, Democrats have spoken about reducing tax expenditures as if they are reducing spending. Hatch was adamant -- and rightfully so -- that the two are not synonymous:

“One crucial myth that I would like to dispel is that tax expenditures are spending… The federal government cannot spend money that it never touched and never possessed. What tax expenditures do is let taxpayers keep more of their own money. The American people are the ones that earn their money through their ideas, their risk, and their labor. Whether you are a successful business owner or a part-time worker just starting out, the money that you earn is yours. It is your money. And only by your consent is the government permitted to take some of it in taxation to pay for certain public goods.

So when you hear tax hike proponents come to the Senate floor and say we are giving these businesses and individuals all this money in tax expenditures, they are incorrectly assuming that the government has that money to give in the first place. The government does not have this money to give. That money belongs first to the people that earn it — those businesses and individuals that are the American taxpayers."

The Senator from Utah explained that tax expenditures can only be eliminated if done so in a revenue neutral fashion – which would involve tax cuts of equal or greater value:

“I am open to looking at eliminating or reducing some tax expenditures as part of comprehensive tax reform, but only if tax rates are lowered enough to reach a revenue neutral level. Alternatively, reduction or elimination of tax expenditures could be balanced with new tax cuts that are of equal or greater value to the revenue generated by the eliminated expenditures. But if tax expenditures are reduced or eliminated, without tax rates being lowered enough to reach a revenue neutral level, that is a tax increase, plain and simple.

Reducing or eliminating a tax expenditure without lowering rates enough to reach a revenue neutral level will cause the size of the federal government to grow, while reducing or eliminating spending causes the size of the federal government to shrink.”

It is simply disingenuous to refer to tax expenditures as mere “loopholes” for the wealthiest Americans. Hatch pointed out that these so-called loopholes are critically important to middle class families:

“As a policy matter, when it comes to tax expenditures, one person’s loophole is another person’s opportunity to save for college and retirement, finance a home, and tithe to your church.”

At the end of the day, Hatch chalked up the argument over tax expenditures to one of differing world views:

Liberals think that all of the money that you earn belongs to the government. You have no independent right to the fruit of your own labors, because only by dint of big government are you ever able to make something of yourself.  This view is foreign to most Americans — Republicans or Democrats.   It is a view that Alexander Hamilton, and Benjamin Franklin, and Abraham Lincoln would take issue with.  But this is the political philosophy of the modern left.”

What do you think of Hatch’s comments? Where do you stand on the issue of reducing or eliminating tax expenditures?

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