The Washington Post has an article by Len Burman talking about ways to save more money than the ridiculous budget freeze proposed by the president. His solution: Freeze “tax expenditures.”
Tax expenditure is the technical name for spending programs run through the tax system — all of those tax breaks that politicians of both parties love to dole out like Christmas presents. The mortgage interest tax deduction and the exclusion for employer-sponsored health insurance are among the most well-known such items.
He makes the case that politicians love tax expenditures because they allow them to pay off their favorite interest groups. Yet it has a price: The higher tax rates they require to raise revenue doesn’t cover their cost. True. However, there is no good literature on whether tax expenditures are a better way to provide government services than spending or regulation, so the jury is still out on that point.
I was glad to see that one of his stated goals for going after tax expenditures was to cut marginal rates.
A study published in 2008 found that eliminating all individual income tax expenditures would permit a 44 percent across-the-board cut in tax rates without reducing revenue. The top marginal rate could drop from 35 percent to 20 percent. Conservatives could stand up and cheer.
I could certainly cheer for that. Plus, the more holes and tax credits there are, the farther away we are from a consumption tax. So that would be a step in the right direction, as long as rates are reduced. However, I bet that liberals will be the first to object to the exercise. It is often assumed that tax expenditures primarily benefit the wealthy, but this is not true. For instance, the largest tax expenditures, such as for mortgage interest, primarily benefit the middle class.
However, here is what my main issue with this article is: The very concept of tax expenditures implies that any income that is not taxed due to a tax preference belongs to the government. In an unusual case of candor, President Reagan’s FY1984 admitted this fact. The section on tax expenditure includes this paragraph:
[The term "tax expenditures] is . . . unfortunate in that it seems to imply that Government has control over all resources. If revenues which are not collected due to “special” tax provisions represent Government “expenditures,” why not consider all tax rates below 100% “special,” in which case all resources are effectively Government-controlled?
Reagan has often written against the term “tax expenditure,” for that same reason.
Anyway, I thought it was an interesting article that might revive an old debate. Here is also a good piece to read on the issue.
Related Posts
- How Would You Slash the U.S. Budget? — By: Veronique de Rugy
- Is Obama Serious About Cutting the Budget? — By: Veronique de Rugy
- Senate Budget Committee Hearing This Morning — By: Veronique de Rugy
- re: How Would You Slash the U.S. Budget? — By: Veronique de Rugy
- ‘Obama Budget Rigs Health Care Numbers’ — By: Veronique de Rugy
