Is there a principled small-government position on tax policy?
Martin Sullivan says the fight over the Ethanol and biofuel subsidies in the Bush-era tax extension bill last month previews a split in Republican ranks on tax policy:

In one side were the farm state legislators trying to keep corn prices high and the profits flowing from ethanol distilleries all over the Midwest. Their ringleader was Senate Finance Committee ranking minority member Chuck Grassley, R-Iowa, who was just reelected to his sixth term with 64.5 percent of the vote. He cosponsored legislation with Senate Budget Committee Chair Kent Conrad, D-N.D., to extend the credit, along with tariffs on imported ethanol, for five years.

But for the first time, there was serious opposition to the three-decade-old ethanol subsidy: The Tea Party Movement:

“If you’re wondering which of America’s leaders are serious about cutting wasteful government spending, you might start by examining who’s behind the effort to extend tax breaks to America’s corn ethanol industry,” wrote Tea Party activist Tammy Henry on her blog. David Horowitz on Redstate.com, another right-leaning blog, blasted conservatives for allowing inclusion of ethanol subsidies in the tax bill: “If Republicans lack the will to strike out at the heart of the dependency and welfare state after a stunning electoral victory, then when will they assert themselves?” And similarly from Lurita Doan on the conservative website Townhall.com: “Why allow pork, such as the ethanol subsidy, to besmirch GOP efforts to restore fiscal sanity?”

Mr. Sullivan notes that some folks identified with libertarianish outfits, like Cato’s Michael Cannon and Americans for Tax Reform’s Grover Norquist, are unabashed loophole lobbyists. That’s a position I’ve always found puzzling. If you don’t think the government is competent to control the economy by writing checks to favored industries, why would you think they should try to do the same thing with targeted tax breaks? Spending is spending, and running it through a tax return doesn’t change it into something better.
Mr. Sullivan can’t resist some of the conventional nonsense about the Tea Party movement:

… the Tea Party is more famous for passion than for logic…No doubt the reform-minded academic highbrows will be squeamish about allying themselves with the anti-intellectualism of the Tea Party.

Mr. Sullivan doesn’t identify the towering intellectuals in Congress or elsewhere that the Tea Party is against. It’s hard to see where reliance on intellectual rigor has been a big part of politics since maybe 1789. For what it’s worth, the Tea Parties would claim a few intellectuals in their corner, like Hayek and, in their view, Jefferson, Locke and Adam Smith.
Still, Mr. Sullivan accurately notes the tension illustrated by the ethanol debate. It’s broader than an intra-party squabble. It’s a battle between outsiders and insiders. As he points out, “Targeting tax breaks to favored constituencies comes naturally to politicians.” To many traditional Republicans, the battle for power is just a fight over who controls the goodie faucet. The Tea Party activists want the faucet shut off.
The TaxProf has more.

Tags: corporate welfare, Martin Sullivan, tax policy, tax reform, tax.com, TaxProf, Tea Party

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