Fiscal Policy Highlights Around the Net

1. Over at Third Way, Bill Rapp used my data on debt limit votes to make a great graphic showing that those votes are about politics, not principle.

2. Over at the Tax Policy Center, Eric Toder pushes back against the idea that tax expenditures — spending in the tax code — are loopholes and earmarks:

The House Budget resolution promises an individual tax reform that “simplifies the broken tax code, lowering rates and clearing out the burdensome tangle of loopholes that distort economic activity.” The Fact sheet describing President Obama’s new budget framework calls for “individual tax reform that closes loopholes and produces a system which is simpler, fairer, and not rigged in favor of those who can afford lawyers and accountants to game it.” The bipartisan National Commission on Fiscal Responsibility and Reform notes that the tax system is riddled with tax expenditures and adds, “These earmarks not only increase the deficit, but cause tax rates to be too high.”

But the largest tax expenditures are not loopholes or earmarks snuck into the law in the dead of night to benefit a shadowy handful of super-wealthy individuals or well-connected corporations. Rather, they benefit tens of millions of taxpayers. Among the biggest: itemized deductions for home mortgage interest, charitable contributions, and state and local taxes, exemption of income accrued within tax-preferred retirement saving accounts, and the exemption from tax of employer contributions to health insurance plans. IRS data show that 39 million taxpayers claimed deductions for home mortgage interest and charitable contributions in 2008, and 35 million deducted state and local income taxes.

3. The Committee for a Responsible Federal Budget offers a helpful side-by-side comparison of four leading budget plans:

3 thoughts on “Fiscal Policy Highlights Around the Net”

  1. Journalists misuse the term “loophole” when writing about tax policy more than any other word in the vocabulary. When you see it used, you can bet the writer has an agenda.

  2. I should have included politicians and bloggers along with journalists. It betrays bias similar to the use of a word like “ilk” which, although a perfectly good english word, is almost always used , because of its negative phoenetic associations, to paint a unflattering picture of someone. So, perhaps I should have written “journalists and their ilk”.

  3. Indeed “loophole” is a misleading pejorative.

    That said, the real problem with tax expenditures is that so many people view tax expenditure subsidies as part of “lower taxes” and “smaller government” (as if in the same family as lower tax rates or lower spending) rather than what they generally are: subsidies, and therefore equivalent to “higher spending” and “bigger government”

    A subsidy is offered for purchasing Product X (either directly, as in a mortgage, or indirectly, as in your employer diverting part of your compensation from cash to purchase of health insurance).

    Those who purchase Product X end up with more money as a result of the subsidy than they’d have without the subsidy. The Treasury has that much less and thus the deficit is that much bigger, which means sooner or later other taxpayers have to pay more and/or spending will have to be lower, just as would be the case if the Treasury had sent out checks to the purchasers of Product X or to the sellers of Product X, which everyone would call “spending”.

    As a side note, a subsidy increases the price for Product X, so those who buy Product X but don’t get the subsidy (because they don’t itemize or because they buy insurance but not through an employer) lose out twice. And of course there are different matters of degree, since one generally gets a larger subsidy if he purchases more of Product X and if he’s in a higher tax bracket.

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