Sunday, March 16, 2003

I Don't Want to Get Off on a Rant Here, But . . .

In general, this weblog is directed to discussing "technical" issues pertaining to tax and business law. In the course of these commentaries, it is impossible to avoid discussion public policy issues. After all, in some sense, the law is the articulation of public policy. However, I have avoided topics that are of a more general nature. Thus, I have not offered my opinions on, say, broader issues of tax policy such as tax rates, etc.

My approach has been driven by my view that this weblog is a semi-scholarly endeavor. If my postings were to deal with issues that are the subject of partisan debate, the weblog might be perceived as having a focus that is different from its original intent--to highlight and discuss technical developments in the field.

Readers can assume that I have a political bias. However, their assumptions as to the nature of that bias are often incorrect. For instance, because my work is, to a large degree, devoted to helping my clients minimize the taxes that they pay, there is often an assumption that I am anti-tax. Somewhat conversely, after hearing my opinions as to the necessity of increasing the audit capability of the I.R.S. and the Maryland Comptroller's Office, people sometimes conclude that I’m merely trying to bend public policy to indirectly drum up more business for myself (i.e., more audits, more clients). Neither of these assumptions are correct.

This brings me to the subject of this posting. With the exception of the impending Iraq invasion and, perhaps, the Korean situation, the most heated debates in this country today are over tax policy. The public generally tends to ignore the nitty-gritty of tax policy, since tax policy discussions can cause even the eyes of insomniacs to glaze over. As a consequence, there is a vacuum in public discussions that tends to be filled with "cranks and charlatans." (The term is the appellation applied by the current president's chief economic advisor to the proponents of supply side economics. That being the case, I wonder what he really thinks about the President's tax proposals.) In this category are those who argue that the federal or state budget is bloated and that taxes could be cut and governmental deficits disappear if this bloat were properly attacked.

Access to the facts that refute this argument as it pertains to the federal budget are widely available. Thus, one need look no further than the budget proposed by the White House (which is easily accessible on-line) to discover that the non-military discretionary spending proposed by the White House is only 19.24% of the total proposed spending package. (Non-military discretionary spending is everything other than entitlements, such as Social Security and Medicare, and interest on the federal debt. It represents the cost of operating virtually every governmental agency from the State Department, to the Justice Department, to the FAA, to the FDA, to the costs of running the White House.) This is less than the “off-budget deficit” (the amount that is spent on all items other than designated trust fund programs such as Social Security). In other words, even if non-military discretionary spending were cut to zero, the federal government would still be running a deficit with respect to its current operations. And, this would be the case even before any costs of a war on Iraq are factored in.

It is often more difficult to find similar analyses of state spending, particularly with respect to relatively small states such as Maryland. A recent op-ed piece in The Baltimore Sun by Steve Hill, director of the Maryland Budget and Tax Policy Institute helps to fill this void. The article points out that (i) Maryland government is lean–it has fewer employees per capita than all but nine other states, (ii) that the higher education system in Maryland is underfunded when compared to the systems in other states, and (iii) that state and local governmental spending reflects a smaller share of our economy than in every other state but three.

I disagree with some of the Institute's suggested remedies to balance the state's budget. By way of example, in one paper addressing three alleged loopholes, the Institute urges the passage of the entity transfer tax bill, a step that I have opposed for a number of years. On the whole, however, the Institute and its website are a powerful resource with which to battle Maryland's cranks and charlatans.

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