Tax breaks in the eye of the beholder

A good article from The New York Times exploring the definition and politics of tax breaks. While lawmakers may often favor elimination of tax breaks, in general, they tend to protect the ones they helped create. As my Mercatus colleague Jason Fichtner notes,”These special interests are getting carve-outs from Congress, and both sides – Republicans and Democrats – are guilty of picking their favorite interests to support.”

There are tax breaks for Eskimo whaling captains, NASCAR racetrack operators and the makers of wooden toy arrows according to the article. All told federal tax breaks amount to $123 billion a year. Senator Tom Coburn is interested in tackling this mess of loopholes. His report on how to balance the budget with $9 trillion in savings “Back in Black” details the range and cost of tax breaks currently provided to any number of activities and individuals (starting on page 558).

Breaks include federal programs like the Empowerment Zone/Renewal Community, operated by HUD to spur economic development. The literature on offering tax breaks to businesses to locate in a particular geographic area is at best mixed with one major obstacle: it’s difficult to determine whether the tax credit or some other set of factors is responsible for an observed outcome. For more, here’s an analysis of the GO Zone, a tax incentive program created post-Katrina for the Gulf Coast.