Saturday, July 23, 2011

Taxes:  Tax Expenditure Cuts =?= Tax Increases

I spent time digging through the federal budget this week, and I concluded that Republicans are right: There is plenty of spending to cut. For instance, we've got one government program that hands people money to buy houses that, in most cases, they would buy anyway. They get even more money if they buy a more expensive house. Over the next five years, that program alone will cost almost $500 billion.

Another federal agency will spend more than $400 billion to reward people for making money by investing and earning capital gains and dividends rather than by going to work and taking their income in wages. I like investors and I participate in the market, but is this really the sort of activity that requires a $400 billion subsidy?

Midway through my excavation, however, when I was really just getting warmed up, I realized I had made a mistake. I wasn't looking at the federal budget — I was looking at the U.S. tax code. So cutting all those costly programs wouldn't count as cutting spending to Republicans in Washington. It would count as raising taxes.
Republicans say that increases in revenue are increases in taxes. It doesn't matter whether the money comes from closing loopholes or raising rates.

Some of their brightest policy lights, however, disagree. Former Federal Reserve chairman Alan Greenspan says that tax expenditures are misclassified because they are identical to outlays. Gregory Mankiw, who led President George W. Bush's Council of Economic Advisers, calls expenditures stealth spending implemented through the tax code. You can't find a serious economist on God's green Earth who thinks the economy differentiates between cutting a government program that subsidizes health insurance and cutting an equally large tax break that subsidizes the purchase of health insurance.

For more, see Expenditure Cuts Could Save Billions, but to GOP It's All Code for Tax Increase by Ezra Klein, July 21, 2011 at The Washington Post.

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