Van Hollen: Don’t Like the Sequester? Try a Tax Hike
As the nation gets draws nearer to the fiscal cliff, House Budget Committee ranking member Chris Van Hollen (D-Md.) just reintroduced his proposal to stop the $109 billion in planned spending cuts (known as the sequester) reached under the Budget Control Act last summer. In traditional tax-and-spend liberal fashion, it’s heavy on tax hikes and light on real spending reductions. Here’s the outline of Van Hollen’s plan:
- Cut spending $26.5 billion over five years by ending farm bill direct payments to farmers
- Raise taxes $46.7 billion by creating another Alternative Minimum Tax on people making over $1 million a year
- Raise taxes $38.2 billion by further discriminating against oil and gas companies by blocking their access to the section 199 deduction
Big government types like Van Hollen love to tout claims that they prefer a “balanced approach” to deficit reduction that will trade one dollar in tax hikes for three dollars of spending cuts, or some variation of this formula. But in this proposal Van Hollen actually flips the ratio and proposes more than three dollars in tax hikes for every dollar in cuts. Not to mention that both chambers and political parties have already agreed that direct payments are one of the worst abuses of Ag policy and should be cut. Congress has already crafted a massive entitlement program to replace direct payments (called shallow loss) that will continue the corporate welfare just under a different name and will end up spending more than direct payments ever did. So, in actuality, Van Hollen proposes no new cuts in spending.
Politicians going back on their promise to cut spending is nothing new. Last summer, Congress agreed to cut spending in exchange for raising the debt ceiling. That deal didn’t even make it a full year before Congress broke the spending limits. Van Hollen joined 372 representatives and 74 senators to pass the surface transportation reauthorization bill that exceeded the spending limits by $2.5 billion. Although this is chump change in Washington, it speaks to Congress’s inherent lack of seriousness to get spending under control. If they cannot stick to last year’s spending cuts, why should we think they’ll stick to Van Hollen’s proposal now?
On the tax side, Van Hollen continues the absurd claim that oil and gas companies are receiving some special treatment. He says that’s why he wants to raise their taxes by blocking their access to the section 199 manufacturing deduction. In reality, oil and gas companies are already limited to a 6% deduction under section 199, while all other manufactures (think video games, newspapers and clothing companies) are able to claim a 9% deduction. Special treatment indeed…
AFP advocates for a flat and neutral tax code, where deductions are limited to only legitimate business costs. In order to establish the proper basis for taxation, you must first deduct all costs so that you’re only taxing profit. However, if Congress decides to enact a sweeping deduction to encourage certain activities—like the section 199 deduction for domestic manufacturing—then that deduction should be widely available. Certain businesses shouldn’t be blocked just because certain politicians don’t like them or their product. Unfortunately, that’s exactly what Van Hollen’s doing.
Of course Van Hollen’s proposal isn’t serious legislation and even he admits that it has no real chance of moving forward. It does, however, give us a glimpse into what the big spenders will be pushing in the back halls of Congress during a lame duck session under the threat of economic Armageddon. They’ll be trying to extract more taxes and dodging the real hard spending cuts that must be put in place to protect our economic freedom.