Instead of looking at all the breaks for mortgage interest, health care, retirement savings and so on as deductions, picture the government writing you a check for each item. This equivalence between tax deductions and government spending leads economists to call them “tax expenditures.” Reformers have hit on an even more pointed description: spending through the tax code.
The tax system is also equivalent to a collection of individual mandates, like the one in the Obama health-care law, with penalties for Americans who fail to buy insurance. For many people, that’s how our system works. You and your neighbor might have the same income, but if, unlike your neighbor, you fail to have a mortgage or buy as much health insurance, then you have to pay higher taxes.
The piece also points out a contradiction in the position of tax cutting zealots like Grover Norquist.
The very idea of a “tax expenditure” depends on the assertion that any dollar the federal government chooses not to take from you by force it has in fact given to you. The federal government owns your life’s work and its rewards and allows you to keep some—in its generosity. If a mugger fails to completely empty your wallet he or she has kindly “given” you that money.
Oddly, liberals tend not to include the “tax expenditure” of allowing some citizens to pay less than the present top rate of 35% of their income in taxes, but their logic would demand they do so. It would be the largest “tax expenditure.”
Attacking “tax expenditures” is an effort to avoid focusing on real expenditures by the federal, state and local governments. Nice try by the left, but not a serious way to deal with the costs of government spending.
I first saw this during the Carter years. WE see it again for the same reason. The big spending of the left is again becoming a political liability.
Grover Norquit’s response is as old as manipulative and disingenuous politics itself. He would love his followers to believe that the government has no right to take one cent of what you earn to build roads, bridges, or a national defense. He believes–well he claims to believe–that all taxes are theft, and uses this specious rhetoric to rally those who simply do not know any better. In Grover Norquist’s world, we would build our own schools, highways and battleships much like an Amish barn-raising.
Wolfers also sets forth how regressive our system of tax expenditures through subsidies actually is in practice.
Taken together, individual income tax expenditures are the equivalent of sending $686 each year to those in the bottom fifth of the income distribution, $3,175 to those in the middle fifth, and $30,714 to those in the upper fifth. The average member of the top 1 percent gets nearly a quarter of a million dollars a year.
The answer, according to Wolfers, is to replace the deductions with a check. In other words, mail each taxpayer a check instead of allowing the deductions and other tax breaks to be offset against income or tax liability. In that case, the public would be able to see more clearly the subsidies received and put a stop to the ridiculous belief that subsidies are somehow different than direct payments.