Archive for April, 2011

Tax Spending

Wednesday, April 13th, 2011

I read this post by Bart Hinkle about Obama’s recent speech where he called for Congress to cut “tax¬†expenditures.” This phrase rubs conservatives and libertarians the wrong way and triggers autopilot arguments about how the government doesn’t own your stuff in the first place, so by taxing you less, it’s not giving you anything. True as these arguments are when applied to taxes as a whole, they miss the point in this case. Here’s my response to Bart:

A tax credit or deduction that is predicated on a certain behavior or qualification (i.e. not offered to everyone) really is like spending, and I think that is what Obama has in mind when he said that. Compare three scenarios:

Scenario 1:

Government taxes everyone X%.

Scenario 2:

Government taxes everyone X% + Y and gives Y to a small subset of “favored” citizens (poor people, people who have home mortgages, people who give money to government-defined “worthy causes,” etc.)

Scenario 3:

Government taxes everyone X% overall, but instead of the burden being distributed as it was in Scenario 1, the “favored” citizens pay Y less (through tax credits and deductions), and everyone else pays Y more.

It doesn’t matter what you call Scenario 3–”tax spending,” “a tax code designed by special interests,”–whatever. Its effect is the same as Scenario 2, and that effect is, for the most part, just as harmful to the principles of limited government as traditional tax and spending.