TaxProf Blog

Editor: Paul L. Caron, Dean
Pepperdine University School of Law

Thursday, January 13, 2011

Pratt: Tax Expenditures Are Key to Deficit Reduction

Los Angeles Daily Journal, Show Me the Money: A Hidden Source of Funding for Federal Deficit Reduction, by Katie Pratt (Loyola-L.A.):

If President Barack Obama and Congress ever decide to get serious about federal deficit reduction, there is a potential $1 trillion deficit reduction funding source that they have ignored. With annual federal budget deficits projected to average $1 trillion for the next decade, they should seriously consider this funding source, instead of assuming - contrary to fact - that radical cuts in federal discretionary spending programs can painlessly and equitably achieve meaningful deficit reduction. ...

Although we can cut some discretionary spending, we also can search for wasteful, duplicative or inefficient federal spending in another place most voters would never think of - the federal tax code. Subsidies totaling over $1 trillion, known as "tax expenditures" are woven throughout the federal tax code. These tax expenditures provide federal subsidies that are targeted to specific industries and activities. Some of these tax expenditures (e.g., the home mortgage interest deduction) are well known and considered by most Americans as entitlements. Many tax expenditures are hidden from public view, however, buried in the complex morass of the federal tax code.

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Whether you call it a tax expenditure or call it a Twinkie, the result of withdrawing it is the same: Taxpayers have less money and the government has more. That's the point, and everyone knows it.

Experts can argue that taking away a tax break used by tens of millions of people is a spending cut, but common sense says otherwise. The tax expenditure terminology is suitable for narrowly focused tax credits, not for mass market provisions.

Tax expenditures also exclude adjustments intended to aid in correct measurement of income available for lifestyle expenditures. Don't make the tax code even less fair than it is and tell the public that you're actually cutting spending. They won't buy that argument at all.

Posted by: AMTbuff | Jan 13, 2011 7:32:29 AM

I second AMTbuff. Raising the effective tax rate instead of the raising marginal tax rate still includes the phrase "Raising the ... tax rate".

Posted by: guy in the veal calf office | Jan 14, 2011 11:38:52 AM