The time I went to see a House Ways and Means Committee tax hearing

At this session, the Ways and Means Committee was hosting a show and tell, as roughly forty Congresspersons took three minutes each to talk about their favorite proposal for tax reform. Here, I’ll talk about one common pattern for single-industry reforms.

I went to the hearing partly for serious purposes that are off-topic here, but also as a bit of tourism. Most of the work of Congress happens in committees that conduct business in the office buildings that flank the Congress building itself. You’re free to attend. Security-wise, there’s a metal detector at the building entrance, but it’s much easier to enter the House Ways and Means Committee hearing room than, say, your flight to Chicago.

The House Ways and Means Committee hearing room

The House Ways and Means Committee hearing room.

 

I thought it was a great time, but I understand if you’d like a summary of the arguments presented instead of watching the full two hour, 40 minute video. There were a few different forms of proposal, but the one I want to focus on can be summarized in two paragraphs and an image I GIMPed up.

Think back to your first day of Econ 101. You learned that if I own a widget and value it at $10, and you want the widget and value it at $20, then an exchange will occur, let’s say at $15, leaving both of us $5 better off. From my perspective as the seller, beyond selling my widget, I produced $5 of added value for you that I did not capture. I’m some kinda charity over here, an essential engine of the economy that deserves to recapture a tiny fraction of the uncaptured value I add for others via a tax subsidy.

This argumentation form can be used by almost any industry, because as long as it is engaged in voluntary trade with the public it produces uncaptured surplus for the public. All it takes to turn this into lobbying is doing some back-of-envelope calculations to quantify the surplus. To give a local example, have a look at this PDF from the DC DOT  justifying why they want to spend millions of public dollars improving private rail lines solely owned and operated by private companies. At the hearing, there was mention of railroads, mechanical insulation makers, contract research labs, and all sorts of other corners of the economy we don’t spend much time thinking about.

My intent is not to say that this argument is wholly invalid—maybe we want to subsidize patent holders, or solar panel producers, or people operating happy farms—but to clarify that the justification for the tax cut is often tediously identical across industries.

A parody image with a car sharing logo and the caption "We create surplus. So shouldn't law  be bent to favor us?"

My mock-up rendering of what most advocacy ads boil down to.

So that’s the rationale for many of the tax reforms aimed at a specific group. With regards to such reforms, we can divide the voting public into two camps:

  • Parties that benefit from the reform.
  • Parties that have no idea that the reform exists.

To give an example that came up several times, 1 hour 24 mins into the video a Representative from Colorado gives a shout-out to H.R. 2903, the Craft Beverage Modernization and Tax Reform Act of 2015 (herein the CBMTRA).

He points out that this bill regarding craft beverages is supported by brewers with a major presence in his district, such as Miller-Coors and Anheuser-Busch. Toward the end of the hearing a representative from Surly Brewing came out to speak. The bill has some parts about tax accounting that benefit only some small businesses, but by my reading the key provision is a change in how some capital expenses are treated under tax law, shifting them from being depreciated over years to being immediately expensed.

Before I told you about this proposal, were you aware that the CBMTRA even existed? As you read about expensing versus depreciation, is your outrage meter registering anything? That’s why this bill has relatively decent odds of passing.

This is a well-tested strategy, and tax law is littered with the results: single-industry benefits that few people outside of that industry know exists, let alone care to challenge.

Next time, I’ll show some interesting examples from Form 3800.

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