Taxes need reform, not just reductions

Published on Thursday, 5 December 2013 20:06 - Written by

Perhaps it’s sacrilege to say so — at least, it’s iconoclastic — but tax reform should mean more than just tax cuts. A sane tax code would benefit everyone, but that will necessitate yanking the tax exempt status of some revered icons, including the National Football League.

That’s the case Republican Oklahoma Sen. Tom Coburn is making.

“The question about the National Football League’s nonprofit status is about far more than the NFL and sports leagues,” Coburn wrote for U.S. News and World Report recently. “Fundamentally, this is a debate about the tax code and what kind of relationship taxpayers want with the federal government.”

No one can accuse Coburn of being a tax-happy liberal; he’s made government waste something of a crusade during his career in the Senate. But he sees the other side of that — government largesse, doled out to the undeserving, in the form of tax breaks.

“First, some context: Few Americans realize that every year Congress sets aside nearly $1 trillion for what are called tax expenditures,” Coburn explains. “These expenditures include everything from popular deductions like the mortgage interest and charitable deductions to special breaks for the tackle-box industry, Eskimo whaling captains, green energy companies and even professional sports leagues like the NFL. Martin Feldstein, a former economic advisor to President Reagan, calls these expenditures ‘spending by another name,’ because they are essentially cash subsides the federal government sets aside to reward specific industries and behaviors.”

Such subsidies are as bad as governmental “pork” spending.

“Tax earmarks are essentially tax increases for everyone who doesn’t receive the benefit,” Coburn says. “In this case, Americans are paying artificially high rates in order to subsidize special breaks for sports leagues. That means you may be paying a slightly higher tax rate than is necessary to subsidize Jerry Jones or Tiger Woods.”

Neither Jerry Jones nor Tiger Woods especially needs the tax break. Neither does the NFL. That’s why Coburn has introduced the PRO Sports Act, which will remove the tax exempt status of large sports organizations. But he doesn’t blame the NFL or even team owners, who are only taking advantage of current tax law.

“The NFL isn’t the problem, but Congress is. For years, politicians in Washington have argued they’re capable of picking winners and losers in an increasingly complex and competitive free market,” Coburn says. “What we’ve seen as a result of Washington’s conceit is a stagnant economy in which government tends to reward losers and punish winners.”

That practice – government picking the winners and losers – is not restricted to sports. Energy tax credits, for example reward the “right” kind of energy production, thereby penalizing the “wrong” kind. As we’ve seen with Solyndra and seemingly countless other examples, the government is pretty bad at picking winners and losers.

That’s what markets are for.

Comprehensive tax reform can’t just be tax cuts. If it was, we would be left with a flawed and confusing tax system — basically, what we have now.

Tax reform must mean cleaning up the tax code and eliminating special treatment for industries that don’t need it.