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Friday, September 30, 2005

Disaster Reconstruction: How Effective Are Tax Breaks?

On September 28 the Senate Finance Committee held a hearing looking at various tax incentives and how they will assist in Gulf Coast reconstruction operations. Governors Blanco of Louisiana, Barbour of Mississippi, and Riley of Alabama testified, and while they did not agree on preferred tax incentives, they all requested some form of tax benefits ranging from zeroing out capital gains taxes on investments to accelerated depreciation to various bond programs.

Other witnesses, however, questioned the use of tax cuts as an effective method of providing post-disaster relief.

• Daniel Doctoroff, the Deputy Mayor for Economic Development and Rebuilding for New York City who helped direct post-9/11 operations, told the Committee that in his experience tax provisions were a cumbersome method for delivering disaster assistance. He argued that benefits are provided only if businesses and economic growth respond to predicted forecasts, and mentioned that Congressional appropriations were a much better way of addressing relief and rebuilding needs.
  
  
• George Yin, Chief of Staff for the Joint Committee on Taxation, also voiced skepticism regarding the effectiveness of tax incentives. He testified that tax breaks are particularly ineffective when addressing the needs of low-income earners, particularly because would-be beneficiaries are not aware of many of the tax provisions or how to obtain them. Also, low-income earners stand to receive less in tax benefits overall because they have less-taxable income.