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Cut Military Waste, Not Charitable Deductions

Did you ever wonder what tax “loopholes” cost relative to war and Pentagon spending?  The figures are now plainly available to compare with respect to other government spending. For example, mortgage interest deductions “cost” Washington some $100 billion in lost revenue. This “buys” America some 11 months of war [1] in Afghanistan or some 14 percent of the whole $740 billion [2] Pentagon budget. Charitable and educational tax deductions “cost” Washington $52 billion per year. These include all yearly tax-deductible donations to churches, universities, charities, thinks tanks, and all other non-profits. All of it equals some 7 percent of Pentagon spending, or just about the amount of the coming sequestration [3] cuts.

The facts above come from an analysis by Politico on the amounts of all major tax preferences in an article titled “Tax Loopholes Alone Can’t Solve Fiscal Cliff. [4]” Altogether they equal about $834 billion. The loopholes include, in addition to the above, $164 billion for employer-sponsored health insurance, $162 billion for exclusion of employer pension benefits, $71 billion for lower capital gains rates, $76 billion for the exclusion of Medicare benefits, $54 billion for the deduction of state and local income taxes, and $52 billion for the exclusion of capital gains taxes on estates at death. These tax deductions are a mere drop in the bucket compared to all the waste and unnecessary costs associated with “Defense.”

Compare these with another study that breaks down all national-security costs. Those total some $1.2 trillion [5]—far more than just the Pentagon’s costs, if one includes the CIA, veterans programs, pensions, interest on war debts, etc., but not the Afghan War, which is another hundred billion. The military establishment’s waste [6] is so extraordinary that anyone in Washington who defends it either plans for America to start more wars (e.g., neoconservatives) or is on the take in some way—perhaps subsidized by a think tank getting money from military contractors. A good overall view of defense spending is by budget expert Winslow Wheeler, “The Defense Budget: Ignorance Is Not Bliss. [7]” And this does not include big-ticket items like the F-35 [8]—scheduled to reach a trillion dollars for an average five hours of flying time per week over its lifetime—or a 12th aircraft carrier battle group. Would tax-paying Americans really prefer a new fighter plane, when America already dominates the world’s skies and seas, rather than have their home mortgage interest deduction?

The CIA and other intelligence agencies cost some $55 billion [9] that we know about. In 2010 some $27 billion [9] more was spent on military intelligence programs. Waste is incredible. The Washington Post ran a series of articles about waste and duplication of efforts at the many intelligence agencies. It pointed out among other numbers that some 50,000 intelligence reports are issued yearly. No congressman, to my knowledge, demanded an investigation. A recent interesting information tidbit was how Defense Secretary Leon Panetta has Air Force planes fly him home to California every weekend. The news came to light when he transferred to the Pentagon, which publishes such information. Earlier at the CIA he did the same, but it was a secret expense. The exploding cost of homeland security is also somewhat hidden: for example, airline passengers pay for much of the government’s costs in higher fares.

Other exorbitant costs are so legion as to be unfathomable. Military pay, for example, is 90 percent higher [10] than that for exceeds that of 90 percent [10] of civilians of similar education and age. Retirement age was set for the cavalry a hundred years ago. Service could easily be extended for non-combat infantry to 25 years from 20 today.

The Coming Attack on Non-Profits

It’s easy to understand that big government is now looking at charitable and educational tax deductions as a new source of tax revenue. As Willie Sutton, the bank robber, used to say (about banks), “that’s where the money is!” All the activists in Washington working for nonprofits should contemplate the handwriting on the wall. Think tanks, just like theaters and museums, depend upon wealthy people for the bulk of their donations, exactly those earning over $250,000 per year, “millionaires and billionaires,” as Obama calls them. Both Obama and Romney called for limits on tax deductions for charity and educational institutions. First they might separate charitable deductions from educational deductions, as is already done in many foreign countries. One way or another, the tax attack is coming. Just think also of all the big government spenders and lobbyists who would not be unhappy to see the demise of those Washington think tanks that study and expose government fraud, waste, and corruption.

The Washington media establishment is just amazing in how most reports constantly support tax increases instead of writing more about government waste. Of course, it’s not just in the defense budget. Medicare fraud alone is about $60 billion [11] per year. Medicaid follows close behind. To understand the numbers, we should never forget that a billion equals one thousand million; a trillion equals one thousand billion.


Jon Basil Utley is associate publisher of TAC.

11 Comments (Open | Close)

11 Comments To "Cut Military Waste, Not Charitable Deductions"

#1 Comment By DensityDuck On November 27, 2012 @ 5:07 am

“Would tax-paying Americans really prefer a new fighter plane, when America already dominates the world’s skies and seas,”

Ha. USAF F-15 have consistently lost war games to Su-33 (operated by India, China, Russia, many others.) Air dominance is dependent on carriers, Pacific Rim airbases, and tanker/AEW support; and China and Russia are deploying missiles that will do for all three. The idea that the US doesn’t need advanced weapons systems because we had good ones in the late 1970s is like saying that the IBM PC-XT ought to still be competitive in today’s computer market.

“Military pay, for example, is 90 percent higher than that for civilians with similar education and age. Retirement age was set for the cavalry a hundred years ago. Service could easily be extended for non-combat infantry to 25 years from 20 today.”

So you think they should fight harder, for longer, and be paid *less*? God bless the troops, eh?

#2 Comment By yitfrew2rg On November 27, 2012 @ 8:58 am

A mercantilism theory is that as coal is easier to safely transport across the globe than natural gas, the feds want to sell it to China to stabilize the US dollar. To do that they need to make it difficult to use in the US. The miners are expected to pay for the cost of transportation of their commodity product reducing their pay or profit.

#3 Comment By Kevin On November 27, 2012 @ 10:29 am

DD, you don’t know what you’re talking about. Su-33 is only used in small quantities by Russian Naval Aviation and has never gone up against USAF aircraft. [12]

USAF had some trouble one time at one Cope India exercise with Indian Su-30MKIs, and they already figured out what the issues were. As far as bases and aircraft carriers being vulnerable to missiles, well…duh, that would pretty much hold true regardless of what aircraft you were using, wouldn’t it?
Get your facts straight, and go back to reading your old Tom Clancy novels.

#4 Comment By NRF On November 27, 2012 @ 1:55 pm

Great point about the large savings to be found in the military budget.

But it’s fallacious to pose a choice between military spending cuts and the elimination of income tax deductions. Our annual federal budget deficit is so huge that we must do BOTH.

#5 Comment By Wag On November 27, 2012 @ 2:47 pm

You’re absolutely right that war spending is a much bigger fish to fry. However, tax exemptions are a smaller part of the problem. The purpose of taxation is to raise sufficient revenue to run government, not to push social policy. Charitable deductions, housing mortgage interest, medical expenses, etc. may be well intended, but only serve to complicate the tax code resulting in either greater debt or higher marginal tax rates to compensate.

Reagan’s ’86 tax reform was nearly the gold standard of tax reform, but alas, the gold was slightly tarnished. He did create the housing mortgage deduction, that likely had at least some influence on the housing bubble that recently burst.

#6 Comment By Andrew On November 27, 2012 @ 5:09 pm

Ha. USAF F-15 have consistently lost war games to Su-33 (operated by India, China, Russia, many others.)

Neither China nor India operate SU-33. SU-33 is stricly Russian toy being assigned to the deck of Russia’s sole aircraft carrier Admiral Kuznetsov, they assigned to the 279 Carrier (Ship) Fighter Regiment. China operates SU-30 MK, India-SU-30MKI. While all those planes share SU-27 as the base model all those are very deep modernizations of SU-27 and are very different fighters, with, especially India’s SU-30 MKI’s having advanced avionics and super-maneuverability capability.

#7 Comment By Siarlys Jenkins On November 27, 2012 @ 11:50 pm

Although charitable deductions are not a huge source of lost or recoverable revenue, there are sound reasons to eliminate the charitable tax deduction. (It should be noted that donations are deducted from taxable INCOME, not from tax owed, so if a $10,000 donation is made by someone in a 30% bracket, they save $3000 on their taxes, not $10,000.)

Charitable deductions put the IRS in the business of certifying what is a “legitimate” charity, what indeed is a charity at all. The government should get out of the business of bestowing seals of approval on voluntary citizen effort. Rather, let each charitable endeavor obtain donations because donors believe in the cause, not because they hope to reduce their taxes by a fraction of the total amount of the donation.

Many political controversies would disappear. Is a church taking stands on political issues? So what? Their revenues are not subsidized by tax deductions. In the early 19th century, many state constitutions limited churches to owning rather modest amounts of property, suitable for a house of worship, but no more.

As for the mortgage interest deduction, perhaps we should cap it at $5000 a year. For an amortized residential mortgage, that would mean half the interest on a $200,000 home, at 5%, would be deductible the first year, and for as many years as the total interest remained above $5000 a year. But We The People wouldn’t be subsidizing unlimited McMansions of any size, or second, third, fourth and fifth homes, like Teresa Heinz Kerry’s.

Businesses, of course, will deduct interest as an expense, when getting from gross revenue to net revenue. Unless we begin taxing gross revenue, without regard to costs (at a much lower rate) that is unavoidable.

#8 Comment By Larry On November 28, 2012 @ 1:20 pm

In an otherwise very good critique of military spending, Jon Utley makes a mistake when quoting an article he linked to by military writer Tom Philpott. Utley states: “Other exorbitant costs are so legion as to be unfathomable. Military pay, for example, is 90 percent higher than that for civilians with similar education and age. Retirement age was set for the cavalry a hundred years ago. Service could easily be extended for non-combat infantry to 25 years from 20 today.”

The trouble is, that’s not what Philpott said. What Philpott said was, and he was quoting the 11th Quadrennial Review of Military Compensation which was released earlier this year, military pay for enlisted personnel exceeds the pay of 90 percent of private sector workers of similar age and education levels. So if enlisted personnel make $1 an hour more than 90 percent of similar private sector workers they are included in this statistic. But that doesn’t mean they make 90 percent more than those workers.

This wage difference came about as a deliberate policy by Congress to try and increase recruiting and retention during the Iraq/Afghanistan wars and it was based on the reality of what previous cuts in military pay and benefits had done to recruiting.

The purpose of military pay and benefits is to attract top-quality people who are willing to serve even at the risk having their arms or legs blown off or losing their lives. In the past Congress reduced military benefits because of budget pressure and then had to turn around and raise them because of the “hollow military.”

Since 2001 less than 1% of the American population has served in the military (active, guard & reserve). I suspect there is a reason for that: it’s very dangerous and difficult work – even if you don’t serve in combat. Remember, they had to impose “stop-loss” orders starting in 2002 to prevent people from leaving and without the Guard and Reserve there wouldn’t enough military personnel once Bush decided to invade Iraq. By 2007 the Army was desperate enough to get people in that they were calling up individuals who had served on active duty and had gotten out but still had time left on their enlistment contract. They also had to lower their standards and they allowed people with criminal records in because it was the only way they could meet their force requirements.

And by the way, serving in the military is the only job in the country where you can be imprisoned if you decide not to show up for work. You can’t just up and quit because you are tired of it.

Conservatives were in the forefront in the 1970’s advocating for an all-volunteer force and everyone was warned back then that such a force was going to be more expensive. And I hear no conservatives today calling for a return to the draft.

There are targets galore in the DoD budget starting with the fact that the Pentagon budget cannot be audited. DoD has no idea where it spends all of its money so unless and until it can be audited I suggest conservatives hold their fire on calling for pay and benefit cuts for the few people who are willing to step up and risk their lives to serve.

You may not agree with our government’s foreign and military policies but for heaven’s sake don’t take it out on the people who are willing and qualified to serve.

#9 Comment By James Canning On November 28, 2012 @ 1:51 pm

Bravo! The US spends at least double what it needs, to defend American national security interests. Treble, in fact. Sheer idiocy. But great fun for those with snouts in the trough.

#10 Comment By Eileen Kuch On November 28, 2012 @ 6:22 pm

How about closing all those 700+ military bases around the globe? Does anyone in the Pentagon have ANY idea of the exhorbitant cost of maintaining these bases? What about the energy costs alone – fueling all these ships, tanks, aircraft, etc.? No one is even mentioning that, not even President Obama.

If charitable deductions are eliminated – even for the wealthy – who suffers? Charitable organizations and the unfortunate people they serve; that’s who. Let’s get real here, and admit that this “fiscal cliff” chatter in DC is nothing more than a big SCAM. If these unscrupulous politicians OF BOTH PARTIES were really serious about reducing the nation’s debt, they would cut out the income tax altogether and replace it with a national sales tax at a reasonable rate.

#11 Comment By kalendjay On November 28, 2012 @ 8:37 pm

Some advice on how to make the cuts mentioned above more rational, and reasonable:

Cancel the overbudgeted Homeland Security headquarters at the site of the old Walter Reed hospital; slim down the Pentagon, house essential DHS staff there, and distribute other DOD-DHS functions in distributed offices across the country, linked by internet. Military pay and petty cash procurements, for example, can be handled at Army Reserve bases.

Scale back military subcontractors, have uniformed staff handle their functions. This will save vast cost overruns, but increase the prestige, tenure, not to mention the pay and average skills of the military. Delegate a higher proportion of combat fighting staff to reservists, who will receive better training and equipment than hitherto. A fine job stimulus program, that is more action than talk for a change, for the young and rural America!

Reconsider the F-35 program by holding a new prototype competition based on more lenient criteria, except for agility and low cost. Do not make the mistake that aviation monopolies and a single aircraft model make for a cost effective or most effective military. This was done when the Tigershark was abandoned in the 80’s, dealing a blow to Fairchild and to an effective tac-air strategy, without creating lasting savings in the form of the F-16.

Replace mortgage deductions with a lifetime home purchase credit, following a model in Australia. The credit is scaled back according to average household income, household assets, and past mortgage expensing. A one time regime of paperwork will be all that most individual tax filers will see. Most may not file a form or receive any benefits in five years from enaction, but at least there can be enough money to allow some lenicy in FHA loans and other programs for a short-term stimulus in housing. Competion to recast or acquire new housing and mortgages could be intense, which is characteristic of many other types of deductions and credits.

My ultimate point is that responsible fiscal reform is neither a cold turkey nor automatic pilot proposition. It is a question of phase-ins, program replacement, and careful tracking of and consensus about taxpayer/government recipient behavior.