Here is an article I just published in The Fiscal Times, prompted in part by Leonard Burman's work,  on the staggering size and automatic growth of "tax expenditures" -- tax breaks, for us non-budget mavens.

     Everybody knows that tax breaks -- on everthing from mortgage interest to green-energy projects -- permeate American life and often amount to backdoor government spending.  Republicans love to promote tax cuts, because they seem to strike a blow against Big Government.    Democrats love them because many tax breaks are a way to fund favored social programs.

Greg Mankiw at Harvard has a really smart post, pointed out by Brooks, on what Republicans could be bargaining for if they really wanted to engage in the deficit commission.

     Mankiw, who was chairman of President Bush's Council of Economic Advisers, acknowledges that tax increases would have to be part of the deal -- a view shared by almost every budget analyst in the world but denied by Republican leaders with flat-earth fervor.    

     But Mankiw then outlines what conservatives should demand in exchange if they were willing to compromise on taxes.  And it's a solid list of ideas:

According to The Washington Post, this was the reaction of House leaders to President Obama's proposal to use tax credits to expand employment:

The administration also wants to put an additional $100 billion toward an immediate jobs bill. One of the most significant ideas would award tax credits worth as much as $5,000 per new hire to employers that expand their payrolls this year. By the administration's calculations, the tax credit would create 600,000 jobs at a cost to the government of about $33 billion.

That is my reaction as well.  If the Federal government could administer a problem this intricate, I doubt we would be in the shape we are in.  We are over two years into these discussions of stimulus and bailouts, and it is disappointing to continue to see these gimmicks being discussed.  What are we going to have next, "Cash for Coworkers?"  The basic lesson does not seem to have sunk in -- when you are relatively poor, you must be more careful with your money, not less.  You should be spending your money only on what you need and not spending it on what you don't.

So goes the logic (with only mild exaggeration) of one of the most ridiculous policy proposals I've read in a while -- to make up for falling gas tax revenues with a new tax on miles driven.  Ashley Halsey III is on the case in The Washington Post yesterday. 

The appropriate tax instrument to make up for declining or inadequate gas tax revenues is ... a higher gas tax rate.  Compared to a higher gas tax rate, a tax on miles driven ignores the amount of fuel used to drive those miles.  Highway travel is taxed the same as city travel.  Gas guzzlers are taxed the same as hybrids. Neither change makes any sense from an environmental perspective. 

That’s what former Joint Committee on Taxation Chief of Staff Ed Kleinbard proposed in footnote 111 on page 43 of this draft paper recently. He stated: “It is the author’s view that the CBO [Congressional Budget Office] is better suited to this task [scoring tax bills] than is the JCT Staff, from the perspective of both the relative stature and the independence of the two organizations.” 

First, I worked on the Joint Committee on Taxation from March 1, 1974 until February 1, 1981, and I maintain strong ties there. 

Second, along with other Joint Tax staff, I helped pass the 1974 Congressional Budget and Impoundment Control Act which set up CBO. Ever since, Joint Tax has supported CBO every step of the way, often without getting much credit. I personally pulled a lot of all-nighters to supply CBO with estimates, as have Joint Tax staff ever since. 

Last night, the National Journal Congress Daily reported President Obama is considering extending all tax rates that expire at the end of this year for at least one year and maybe more.  That would keep the top rate on individual income at 35% and the top rate on dividends and capital gains at 15%.   This would give Democrats a tax cut to vote for going into the 2010 election for all Americans.  There are plenty of House Democrats who would object to extending upper income tax cuts, but, if President Obama supported it, enactment would be likely. 

Washington likes quick fixes to big problems.  Unfortunately, quick fixes rarely benefit the economy.  In 1977, in behind-the-scenes discussions with members of Congress, I argued against the New Jobs Tax Credit.  It was obvious that the credit would reward new hires long after the decision to hire had been made for other reasons.  We spent $5.7 billion of taxpayer money on it anyway so political leaders had something to show the voters back home.  No new jobs were created, although proving that is almost impossible.

The White House is considering reviving the New Jobs Tax Credit for to ward off an election debacle 13 months from now.  How much is that worth?  Replicating the New Jobs Tax Credit would cost about $13 billion.  President-elect Obama proposed a smaller, but refundable $3,000 credit in last year's campaign.  Last January, he dropped it from his stimulus proposal under pressure from Democratic congressional leaders.  Now that the unemployment rate is about to top 10%, it's back on the table.

The most popular tax hike proposal on Capitol Hill these days is the soda tax.  The Congressional Budget Office identified it last December as a twofer:  it raises revenue and combats obesity at the same time.  See Option 106 on page 192.  New York Times columnist David Leonhart wrote an excellent analysis of it yesterday.  The plan is to use this to pay for health care reform.  If it were up to me, I'd add a chip tax too.

Twice a week I tutor inner city children over the lunch hour.  It's a Title 1 school, which means their lunches are provided by the Department of Agriculture without charge from agricultural surplus.  I sit upwind so I don't get sick.  At least they serve subsidized milk instead of soda.  But many kids are obese anyway because they crave chips.  If your diet consisted of soda and chips you be 50 pounds overweight and a candidate for diabetes too.  Every day I tell young kids, "Don't eat chips," but they do anyway.

Monday, President Obama released details of how he proposes to raise $210 b. over the next 10 years from taxing U.S. multinationals on their overseas income and from going after U.S. taxpayers using offshore tax havens.

Deductions associated with deferred overseas income would not be deductible, except for R&D, starting in 2011.  Foreign Tax Credit loopholes would be closed.   "Check the Box" foreign subsidiaries would be required to file taxes as separate corporations.  Tax Havens would be subject to increased disclosure, withholding taxes, and IRS enforcement.  Overseas banks will have to file 1099s on income earned by Americans.

Jack Kemp had an idea that launched a fiscal policy era in the U.S., supply side economics.  Cut taxes and the economy will grow.  Cut taxes more and the economy will grow more. I can't say I agreed with him, but I had to admire Kemp as an inspirational and effective leader.  When Kemp became HUD Secretary, I was even more impressed by the rejuvenation he provided low income housing programs -- not exactly what you would expect from a conservative Republican.