Abusing the Tax Code

Eakinomics: Abusing the Tax Code You might think that the purpose of the federal income tax is to raise the revenue necessary to fund defending the citizenry, infrastructure, basic research, anti-poverty efforts, and a variety of other roles of government. And you might think the goal was to do so in a level, even fashion. If so, you might be naïve and blissfully unaware what the Internal Revenue Code actually looks like. If you had been paying attention at all, you would realize that a major use of the tax code is to tilt the competitive playing field, like the proposed broadband operations and maintenance tax credit. You’d also realize that tax credits reduce – not raise – revenue, and that sometimes they aren’t really credits at all; they are just mislabeled checks. If so, you’d have appreciated that the tax code had been abused nearly 180 degrees from raising to losing revenue, and in a decidedly unlevel fashion. But it is even worse. For a while now, the tax code has intruded into the internal structure of businesses by imposing tax penalties on “excessive” executive compensation. This is on top of the distortion created by the uneven taxation of wage and salary income from fringe benefits such as health insurance. So, at some level, Eakinomics has been in tax-policy fetal position for a long time. But it turns out that it can get worse, and the tax proposals for the reconciliation bill are proof. The bill re-tools a tax credit for electric vehicles that made no sense into a climate policy. Specifically, “New plug-in vehicles would qualify for a $4,000 tax credit as a base amount. Vehicles ‘placed in service’ before the end of 2026 would qualify for an additional $3,500 tax credit as long as their battery capacity is at least 40 kWh, increasing to 50 kWh for new vehicles put on the road from 2027 onward.” Then there is the piece de resistance of abusing tax policy: “there's an additional $4,500 credit available as long as the vehicle was manufactured at a unionized US facility.” Yikes! An unanticipated pro-union backflip with a one-and-a-half twist protectionist industrial policy. Never saw that one coming. And it is ridiculous and offensive. These are the kind of provisions that undercut the efficiency, fairness, and popular faith in the tax code. They are so far over the line they should not even be contemplated.