The High Cost of Cronyism | Commentary

Posted December 1, 2014 at 5:34pm

Imagine for a moment that Congress has decided Lois Lerner needs help. You see, since losing her job, Lerner has had trouble competing in a market with stronger, more competent alternatives.

And so Congress resolves to soften the blow, say, to the tune of a few million per year — a hefty resignation bonus. The outrage that would erupt from all sides is easy to imagine.

But suppose Lerner were provided the award via a tax break only she receives. By following the logic of many in Washington, even diehard fiscal conservatives would have to support this benefit.

Why? Because eliminating such provisions once they already exist is often construed as a tax increase and rejected outright. And while real-life examples might not be quite as outrageous as this hypothetical, a similar scenario is all too real.

I’m speaking, of course, of the tax extender debate. Just this week, many powerful interests are pushing to cement government favoritism, based on the shaky logic that removing it means hiking taxes. One of the few issues Congress will consider during the lame duck, this set of 55 temporary credits known as “extenders” expired at the end of last year — and now members are considering making some or all of the measures permanent.

Wanting to take as much money as possible away from a broken government is reasonable, but what is perhaps harder to understand is the push to entrench Washington’s power to meddle in the marketplace, picking winners and losers via spending in the tax code.

Beyond the rhetoric, it becomes clear that many of the provisions being discussed are brazen examples of cronyism that hurt taxpayers and enable broken government in the first place.

There’s the aptly nicknamed “NASCAR tax break,” which benefits retailers, restaurant owners and motorsports track owners at a cost of $71 million over the next decade. There’s the $1 per gallon biodiesel credit, which cost over $2 billion when it was renewed through 2013; or the Wind Production Tax Credit, which could cost $18 billion over just five years. There are even special breaks for rum producers and the automobile and horse racing industries.

Of course, not all credits are created equal. Despite the dubious wisdom of such economic meddling, some laudable goals are likely served. But with millions to be made, the incentives are easy to spot. According to a recent report, more than 290 lobbyists from 41 companies and trade associations spent more than $640 million advocating for the Active Financing Exception; one company alone deployed 48 lobbyists to push for the provision.

Even supporters of tax extenders acknowledge that “many of the … provisions are repugnant carve-outs” that “distort or dampen economic activity” and that “[t]he system is a messy patchwork that keeps lobbyists well employed.” And so it’s no surprise that these same powerful lobbyists and business groups are now pushing hard for Congress to extend or make permanent the confusing mess of provisions that serves them so well.

The intent here is not to demean profit-seeking or cry foul over lobbying — businesses push for what helps their bottom line; that much is normal and should be expected. But Americans should not accept changing the narrative to misrepresent what is at stake.

With a debt pushing $18 trillion and consistent predictions of major-program insolvency, the high cost of cronyism cannot be ignored. While perhaps not everyone is on the same page regarding whether it’s a good idea for Congress to intervene in the marketplace, what should be clear to everyone is that these measures come at a very high price. Just a two-year extension of all the credits would cost approximately $75 billion, while a permanent extension would run upwards of $770 billion.

It’s worth noting that these figures aren’t exactly “spending” in the technical sense. The Coalition to Reduce Spending focuses on outright instances of Members authorizing direct expenditures. It’s also worth noting that expiration of any tax extensions ideally ought to be revenue neutral. But the fact that an enormous cost comes through a complex method does not soften its fiscal impact.

Washington is clearly broken; it’s easy to see why most Americans support keeping taxes lower. But beginning to improve the Beltway’s brokenness requires restraining spending no matter where it occurs. Our debt rises because of direct expenditures, and it does so by way of sneaky favors to powerful interests. We cannot afford to turn a blind eye in either case.

Jonathan Bydlak is the president of the Coalition to Reduce Spending, a non-partisan organization that advocates for limiting federal expenditures.