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A Tax Deal That Is No Bargain

June 15, 2012 by Ike Brannon

It's easy to understand why Senator Max Baucus and others are trying to get a tax deal that keeps various targeted business tax breaks but not the general rate cuts to the income tax. Baucus is trying to get what is possible. The White House has said it will not tolerate continuing the income-tax cuts at the top of the schedule. There's bipartisan support, however, for preserving some of the business cuts, especially a credit for research and experimentation. But in practice this plan to keep one kind of cut but not another won't hold — other lawmakers are likely to append their own projects to Baucus’s legislation in the form of amendments. A more important failing of the Baucus plan: The economic growth derived from preserving these business cuts may be real, especially the growth from the research and experimentation tax credit, but it will not be consistently strong. "Green" tax breaks sound good but tend to distort already grossly distorted markets, as "Fuel Freedom," a new nonprofit, points out. What the U.S. needs is not more subsidies for green projects; it needs fewer distortions, so that customers can figure out the real prices of what they buy. Then our fuel economy will become more rational, and more efficient. And then we'll get the most growth for the tax law.


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Ike Brannon
Ike Brannon

Ike Brannon served as an Economic Growth Fellow of the George W. Bush Institute from 2012 to 2015. He has a Ph.D. in economics from Indiana University and a B.A. in math, Spanish, and economics from Augustana College. View his full bio

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