Senator Tom Coburn: Congress hands out 'targeted tax breaks to the well-connected'

tom coburn

Retiring Republican Senator Tom Coburn, well known for his diatribes against wasteful spending, has produced a new report lambasting special-interest tax breaks and other "giveaways" in the tax code.

One of Coburn's topline recommendations, which echoes that of many tax policy experts: Many breaks should be eliminated altogether, while some should be reformed and better targeted so they don't provide a "windfall" for some individuals and businesses.

Among companies, tax breaks don't provide a level playing field. "[F]or every tax break claimed by one company or industry other businesses across the country must pay more," according to Coburn's 320-page report. "They ... bear a disproportionately high effective tax rate, because Washington politicians have handed out targeted tax breaks to the well-connected."

Related: Money at stake in the tax break fight

What's more, Coburn added, tax breaks too often reward companies for activities they were going to do anyway. Or they encourage investment in economically ailing communities -- in the absence of evidence that the incentive will help spur growth.

One case in point: The building of expensive sports stadiums funded with tax-free bonds.

Another sports tax break on Coburn's must-go list: Nonprofit status should not be given to professional sports leagues, which take in billions.

"Taxpayers should not be asked to subsidize sports organizations that are already benefiting widely from willing fans," the report said.

There are also some industry- and company-specific tax breaks that benefit the very few. For instance, the report notes, there is a special deduction for Blue Cross Blue Shield.

Catchy 'toon' navigates the tax highway
Catchy 'toon' navigates the tax highway

Coburn, who is leaving office after 10 years in the Senate, does not spare the rich either. The tax code, he argues, should not spend billions of dollars "subsidizing the upscale lifestyles of the well-off" -- including mortgage interest deductions for vacation homes and yachts.

The Oklahoma senator also takes aim at Wall Street, saying he favors taxing what's called "carried interest" as ordinary income.

Carried interest is a portion of compensation earned by managers of private equity and venture capital funds when those funds turn a profit. It is treated as a capital gain and therefore taxed at a much lower rate, even if the manager has not invested his own money in the fund. The rationale: The manager invests his time, effort and reputation choosing and managing others' investments that may not turn a profit or at least not do so for a long time.

"If time, effort and risk are capital investments, then all income should be taxed as capital gains," the report argues.

Coburn also doesn't spare low-income tax breaks, cautioning that there needs to be better oversight to guard against fraud in the claiming of the Earned Income Tax Credit.

And he reserves special ire for lawmakers' repeated renewal of "temporary" tax breaks. Indeed Congress is likely to approve just such a bill this week.

"Most members of Congress refuse to name even one specific tax break they would support eliminating," Coburn said.

Personal Finance


CNNMoney Sponsors