Mr. Musk: Cut A Trillion Dollars Of Government Fat Out Of Tax Expenditures

Bloomberg Op-Ed:  Tax Expenditures Are a Low-Hanging Fruit to Cut Government Waste, by Calvin Johnson (Texas):

The clearest $1 trillion a year of waste resides in the federal tax expenditure budget.

A tax expenditure is a tax benefit given to achieve a specified goal. Most tax reductions are privileged waste—that is, the taxpayer can do anything they want with what they have after tax. It’s the taxpayer’s money.

By contrast, when achievement of some goal is the offered justification, the waste isn’t privileged. The good achieved for the tax reduction is supposed to be greater than the tax Congress has given up. Both government spending and tax expenditures need to be paid for by other taxpayers now or in the future.

Tax expenditures are currently estimated at $1.8 trillion a year, according to the Peter G. Peterson Foundation, looking at the inventories compiled by the White House and congressional staffs. A fair estimate is that half of that could be cut just by eliminating the rents and imposing sharper definitions of the good to be achieved.

People hate waste in government spending. That hate-waste attitude needs to be carried over to tax expenditures. Waste in government spending is typically reported in the millions of dollars, but tax expenditures carry $1 trillion of waste, which is a million millions.

Tax expenditures are wasteful because only a fraction of the tax benefit from a deduction or exclusion is delivered to the site of the purported good. Even once the benefit is delivered, it’s hardly clear what good is sought and whether it’s worth the cost. ...

Cutting out waste from the tax expenditure budget far surpasses alternative ways to reduce the federal deficit and debt. Increasing tax rates incentivizes tax avoidance, and tax avoided is the source of dead-weight economic losses. Tax rates should be as low as possible. But an across-the-board cut in government spending would cut into programs that people really want.

The drawbacks of tax rate hikes and broad spending cuts show why it would be best to get the $1 trillion waste out of tax expenditures before looking to anything else.

Executive Order, Establishing and Implementing the President's “Department of Government Efficiency” (Jan. 20, 2025)

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