Tax Breaks As ‘Tax Expenditures’

A major proposal to address the deficit is to eliminate various tax deductions–such as for home mortgages and charitable (such as church) giving. Those tax breaks are being interpreted as the same as government spending. Eliminating them would increase government revenue by billions of dollars, or even, according to some estimates, a trillion. Glenn Kessler, the Washington Post “Fact Checker,” takes a look at these claims and finds that things are not so simple. Actually, he shows, cutting out the tax breaks may not raise so much money after all.

His evidence and reasoning resists simple summary, so I urge you to read what he has to say: Warning to budget mavens: ‘Tax expenditures’ may yield less than expected – The Fact Checker – The Washington Post.

He also mentions a simpler variation that might have a better chance of passage:

One interesting proposal, advanced by Martin Feldstein, Daniel Feenberg and Maya MacGuineas, would cap the total value of tax reductions that a person could take to just 2 percent of adjusted gross income. Their research suggests that such a cap would raise $278 billion in 2011, and it would encourage 35 million Americans to shift from itemized deductions to the standard deduction, thus simplifying their taxes. It might also be easier to implement than trying to eliminate or scale back some of these popular provisions.

We conservatives hate tax increases, and the notion that the government deigning to let us keep our money is the same as a government expenditure–as if everything we have rightly belongs to the government–is noxious on multiple levels.

And yet, addressing the deficit in a bipartisan plan will almost certainly call for increasing revenues. Setting aside the question of whether that should be the case, what means of increasing government revenue would you find most, if only minimally, acceptable? What tradeoffs would you be OK with?

For example, I would want to preserve the housing deduction (since to do otherwise would damage the housing market even more, which is where our economic woes hurt lots of ordinary Americans, as well as contributing to high unemployment). I would also want to preserve deductions for charitable giving (since churches and other non-profit organizations depend on those). But to preserve those, I might grudgingly accept a cap on deductions or an increase in other taxes.

HT: FWS