Budgets are made up of equal parts spending out and revenue in. But budget negotiators in Washington this fall are talking only about what spending to cut, not what revenue to raise—even though there are tax loopholes to close that should draw rare bipartisan support and eliminate the need to cut programs that benefit tens of millions of Americans.
The White House and Congressional leaders are trying to work out a budget deal before a temporary spending measure runs out December 11. Progressives are trying to avoid $37 billion worth of across-the-board cuts to services slated to kick in. Meanwhile, the federal government will run out of borrowing authority November 3, meaning Congress must raise the debt limit or Washington will be unable to pay its bills.
Conservative House Republicans are demanding trillions of dollars in cuts to Social Security, Medicare, food stamps and other bedrock social programs as their price for supporting a debt- ceiling hike. Senate Majority Leader Mitch McConnell opened the current round of budget negotiations with Democrats by demanding cuts to Social Security and Medicare.
Budgeting focused almost exclusively on cutting services has been the rule for years. Since 2010, Congress has approved $2.7 trillion in spending cuts to reduce the deficit, and just $600 billion in new revenue from higher taxes on the wealthiest 1%. That’s a ratio of spending cuts to revenue increases of more than 4 to 1.
Looking at the big picture, domestic spending as a share of the economy is now at its lowest level in 50 years, according to the Center on Budget and Policy Priorities. And all those cuts have taken a toll. The Coalition on Human Needs documented a few disturbing examples: 100,000 low-income families have been denied rental vouchers; more than 50,000 kids have been excluded from Head Start; hundreds of thousands of Meals on Wheels have not been delivered to homebound seniors.
To create a budget that works for all Americans – and not just the wealthy special interests – Congress needs to raise significant revenue instead of cutting services. It’s time to take a more balanced approach to budgeting. There are scores of tax loopholes benefitting the wealthy and big corporations that could be closed, which could raise more than $1 trillion over the next decade, as documented in this Americans for Tax Fairness report.
Let’s look at just two popular reforms to our loophole-riddled tax code that could raise the money we need to avoid more painful service cuts.
Exploding CEO pay is a contributor to our nation’s destabilizing income inequality. And yet middle-class taxpayers currently subsidize outsize pay packages for America’s corporate chieftains. A tax code change from the early 1990s that was meant to rein in excessive executive pay has, perversely, been used to instead further balloon it, all on the American people’s dime.
The CEO bonus pay loophole lets corporations deduct unlimited amounts from their income taxes for the cost of executive compensation if it is in the form of stock options and other so-called “performance pay.” This tax loophole serves as a massive subsidy for excessive executive CEO compensation and leaves other taxpayers to pick up the tab.
Walmart reduced its federal tax bills by an estimated $104 million over six years by exploiting this loophole that allowed eight top executives to pocket more than $298 million in “performance pay” that was fully tax deductible. That sum would have been enough to cover the cost of free school lunches for 33,000 children for those six years.
Closing this loophole would raise $50 billion over the next 10 years.
Another way America’s top 1 percent use the U.S. tax code to subsidize their huge salaries is by pretending they’re not salaries at all. Wall Street money managers mischaracterize a big chunk of their pay as investment income, qualifying it for a vastly lower tax rate. Shutting this “carried interest” loophole would raise $16 billion over the next decade.
Democratic Senator Tammy Baldwin has introduced legislation to do just that. Four GOP presidential candidates have expressed support for scrapping this camouflaging of multimillion-dollar salaries.
Budget math is tough enough without ignoring half the equation. Let’s make raising significant revenues from corporations and the wealthy a central goal of the current budget negotiations. Let’s create a budget that is more balanced and fairer and that works for all of us.
Frank Clemente is executive director of Americans for Tax Fairness.