Opinion: Columnists

Sunday Reflection: Repeal the Hollywood tax cuts!

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There's an old joke about a boy who complains to his mother that his little sister keeps pulling his hair.

"Oh," responds the mother, "she doesn't know that it hurts."

A few minutes later, the mother hears the girl scream and runs into the other room. "She knows now," the boy explains.

There's a lesson for Republicans in that old joke, if they're smart enough to absorb it.

For the past few years, there has been a drumbeat in favor of increased taxes from Democrats of all stripes. Make the rich pay their "fair share." Get rid of "loopholes." Make the fat cats "chip in a little more." Then Democrats hold up budgets and bills in an effort to extract some tax increases from Republicans.

It's no coincidence that much of the Democrats' base doesn't have to worry about taxes much, either because they work for nonprofits and public entities that don't pay taxes, or because they live off government benefits, or because they work in industries -- like the motion picture and recording industries -- with a long history of shady accounting and favorable tax treatment. Republicans, if they're smart, can nonetheless teach them that tax increases do, in fact, hurt.

They should head into the next budget battle with a list of proposals for tax increases that will sting Democratic constituency groups, but which will seem eminently fair to voters.

The first such proposal would be to restore the 20 percent excise tax on motion picture theater gross revenues that existed between the end of World War II and its repeal in the mid-1950s. The campaign to end the excise tax had studio executives and movie stars talking like Art Laffer, as they noted that high taxes reduced business income, hurt investment and cost jobs.

The movie excise tax was imposed in response to the high deficits after World War Two. Deficits are high again, and there's already historical precedent. Of course, to keep up with technology, the tax should now apply to DVDs, downloadable movies, pay-per-view and the like. But in these financially perilous times, why should movie stars and studio moguls, with their yachts, swimming pools and private jets, not at least shoulder the burden they carried back in Harry Truman's day -- when, to be honest, movies were better anyway.

For extra fun, they could show pictures of David Geffen's yacht and John Travolta's personal Boeing 707 on the Senate floor. You want to tax fat cats? I gotcher "fat cats" right here! Repeal the Hollywood Tax Cuts!

Another valuable proposal would limit the ability of tax-exempt organizations to escape scrutiny and hoard funds. To limit foundations' role as perpetual-employment agencies for cause-oriented Lefties (and it's mostly Lefties), Congress might require them to spend at least 10 percent of their endowment each year, with no wiggle room. Why should rich people be able to go on influencing the culture, tax-free, for decades after they die? (Or, perhaps more accurately, why should foundation apparatchiks be free to pursue their own goals tax-free with other people's money?)

Limits on the charitable deduction might be worth considering: Perhaps a $50 million lifetime limit, which should surely be enough for anyone; perhaps a $1 million to $5 million annual limit. Why should fatcats like Warren Buffett be able to get millions in tax deductions that average Americans can't?

Limiting the pay of nonprofit leaders (including university presidents and foundation heads) to no more than the pay of a member of Congress or a Supreme Court justice might also be worthwhile. Who needs to make more money than that, especially when it's coming from tax-deductible sources? At some point, you've made enough money, as a great man once said.

Beyond this, if Democrats demand truly serious tax increases, Republicans could propose capping the mortgage interest deduction so that houses worth more than $250,000 are ineligible. (You say that hits blue states harder? Darn!) Ending the deductibility of state property and income taxes -- which would also hit residents of high-tax blue states harder -- might also be worth it. These measures would be unpopular with a lot of voters, but they'd mostly be Democratic voters.

I'm just a mild-mannered law professor, and if I can think of these things, I suppose the tax experts and legislative wizards in Congress could do much better. So why haven't they?

One reason -- as many observed when so many Republicans were carrying water for Big Entertainment over various draconian and corrupt intellectual property bills, from the DMCA all the way to SOPA and PIPA -- is that too many Republicans can't bring themselves to go against big business, even big businesses that are their sworn enemies. That hardly speaks well of their perspicacity, or their public-spiritedness.

Another reason may be that they're so used to attacking Democratic tax increase proposals that they're in a rut. But these are desperate times, and they call for desperate measures. A little bit of hair-pulling by the GOP, and Democrats may quickly lose their enthusiasm for tax-increase grandstanding. If some of them wind up sounding like Art Laffer, well, that's just a bonus.

Examiner Contributor Glenn Harlan Reynolds is a University of Tennessee College of Law professor and founder and editor of Instapundit.com.

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