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Cut Military Waste, Not Charitable Deductions

And save mortgage tax breaks by winding up the Afghan War.

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 in Afghanistan or some 14 percent of the whole $740 billion 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 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.” 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—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 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.” And this does not include big-ticket items like the F-35—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 that we know about. In 2010 some $27 billion 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 than that for exceeds that of 90 percent 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 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.