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Debate Over Tax Cuts, Earmarks Stirs Right

When the Senate agreed last week to strip from the stimulus bill a $246 million “Hollywood earmark,” not all conservatives were cheering.

At Americans for Tax Reform, Tax Policy Director Ryan Ellis argues that this was not an earmark at all, but a tax cut, and tax cuts are good.

Earmarks, Ellis said, are spending provisions, and tax cuts (even goofy ones) should not be tarred with the same brush as earmarks.

“Conservatives should not be opposed to tax cuts, they should be opposed to new spending,” Ellis told Roll Call.

ATR is touching on a philosophical divide that has kicked around conservative circles for years, several sources say, though for the most part, conservatives have opposed targeted tax cuts along with spending increases because of the concern that both carry the whiff of corruption — Members doing favors for a few supporters.

“There is some differing opinion about this in the conservative community,” said David Williams of Citizens Against Government Waste. While all conservatives support lower taxes, “targeted tax breaks are just another manipulation of the political system,” the same system that leads to out-of-control spending.

House and Senate rules adopted in the 110th Congress define earmarks as either “Congressionally directed spending” or a “limited tax benefit.”

Sen. Tom Coburn’s (R-Okla.) amendment to the stimulus bill removed a provision that would have allowed studios to write off 50 percent of the costs of equipment used in film production in 2009 — which he said would fit most people’s definition of an “earmark” even if it covered too many taxpayers to be considered a “limited tax benefit.”

But Ellis and other conservatives argue that the language of these rules was drafted by Democrats specifically to blur the distinction between tax cuts and spending increases, so that they could attack Republican-sponsored tax cuts as big spending.

Last fall, ATR circulated a memo that was widely cited on conservative blogs, emphasizing that “calling tax cuts ‘earmarks’ is very unhelpful and completely wrong from a fiscal conservative perspective” because it “puts tax deductions and credits … on the same par as bridges to nowhere.”

Rep. Pete Sessions (Texas) and other Republicans cited this argument in defense of last fall’s financial bailout bill, which included tax credits for Texas hurricane victims and extensions of other tax breaks.

“Unfortunately, some individuals confused the debate by peddling the erroneous notion that tax cuts are earmarks,” Sessions wrote on his Web site. “Let me be clear: Tax relief is not pork. Tax relief is not an earmark.”

John Hart, a spokesman for Coburn, said the Senator “would certainly agree with the point that, on the whole, if you are going to have an earmark, he would rather have it go to a tax cut than a spending provision.” But that said, Hart added, “I don’t think we do damage to the movement necessarily by arguing that singling out Hollywood for a tax benefit is an earmark.”

Chris Edwards, director of tax policy at the Cato Institute, said “if you believe in the ‘starve the beast’ theory — that government spending ultimately would be limited by how much revenue comes through the door — then yes, I have sympathy for that argument” that any tax cut is good. But Edwards said there is a caveat to that notion: “Any permanent tax cut is good. But all the stuff in this bill is temporary.”

Edwards says the temporary, targeted tax credits create an industry in Washington dedicated to lobbying Congress each year to extend the expiring tax cuts, and lead businesses to focus more on Congressional action and less on creating wealth.

CAGW’s Williams said the other problem with targeted tax cuts is that they “make the tax code more and more difficult and complex … hundreds of pages get added to the tax code seemingly every year.” Most conservatives support tax cuts but are more interested in fundamental tax reform and tax code simplification, he said.

Ellis said he considers Coburn a strong friend of the tax reform movement. “We love Coburn; he’s terrific on everything,” Ellis said. “We just don’t think it’s a useful exercise for conservatives to be opposing tax cuts. There are only so many bites at the apple,” and conservatives should focus their limited political power on cutting spending, Ellis said.

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