Taxes a la mode

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BY TAXPAYERS FOR COMMON SENSE – Adding insult to injury, taxpayers recently found out that BP was able to save $13 billion on their taxes by writing off their losses associated with last summer’s Gulf of Mexico oil spill.

Talk about a silver — golden — lining.


So not only were we left with an environmental disaster in the gulf, diminished economies in the neighboring states, and the use of federal resources, but the federal budget sank deeper into the red because BP could write off its losses.

This isn’t to say that BP wanted the spill to happen. Who can forget their then-CEO Tony Hayward famously telling us “There’s no one who wants this over more than I do. I would like my life back.” But it’s hard to believe this was what tax writers had in mind when they decided to allow companies to deduct losses from their tax payments.

So it goes with the tax code. As it increases in complexity with more loopholes, carve outs, and sweeteners added to encourage this or that activity, the law of unintended consequences — and cost — continues to grow.

This isn’t just dodges and abusive tax shelters. The tax code is riddled with provisions picking winners and losers. Provisions that favor one industry or investment over another without any oversight or accounting of the costs, or even whether these preferential tax policies are achieving what politicians claimed they would.

For example, the home mortgage interest deduction has increased the cost of homes and contributed to the housing bubble while countries without similar tax policies — Canada, England — have roughly the same or higher rates of home ownership. Or, the deduction for employer provided health care plans which has subsidized so-called Cadillac health care plans, helped render invisible to the insured the true cost of health insurance, and hindered shifts in the workforce because people are tied to their jobs because of health insurance.

Since the last fundamental reform in 1986, tax entropy has occurred, making the code more complex and less ordered. Like a forest never allowed to burn, the underbrush and debris piles up, choking out life and making it impossible to navigate. What we need is a controlled burn in the tax code.

We can start right now with the long list of energy tax breaks. This week the oil and gas companies are releasing their first quarter results and unlike those of us feeling pain at the pump, these corporations are pumping up their bottom lines. ExxonMobil announced that it made more than $10.7 billion in profits, roughly $5 million an hour for the last three months. The industries’ tax breaks are deeply imbedded in the code — some are nearly 100 years old. But they are all over the place — a deduction for exploration, another for depletion of their assets, another for royalties they pay to foreign governments. The list goes on, and some in Congress are trying to add to that list. Talk about wrong-headed.

We should rip all of the energy tax breaks out by their roots. Uncle Sam and well-heeled lobbyists shouldn’t be picking winners and losers in the code whether they be wind and solar or oil and gas. And let’s be clear — the big winner, not surprisingly, is oil and gas, which spent more than $30 million in campaign contributions during the last election and $150 million on lobbying in 2010. A pretty sound investment for their billions in tax breaks.

Last year’s fiscal commission called for tackling tax expenditures, the President went after them in his budget, so did House Budget Chairman Ryan in his budget, and just the other day he said “subsidies for all energy companies need to be reduced or eliminated so that we can get government out of the business of picking winners and losers in the market.” Here, here. Time for Congress to quit yappin’ and get cuttin’.