Debating the American tax system or federal deficit? Don’t forget the $1.1 trillion in tax expenditures (the breaks and credits individuals and businesses get courtesy of Uncle Sam). The debate about the deficit usually involves discretionary spending (part of the U.S. Federal Budget that is negotiated between the President and Congress each year as part of the budget process).
Why are tax expenditures left out of the debate? Because everyone, individuals and business, love receiving that check from Uncle Sam. Not all tax expenditures are bad. But, when they don’t benefit society as a whole (good) and only benefit corporations or the wealthy (bad) that in turn either increases taxes for those who did not receive the tax break or reduces public services. So, it is imperative members of congress, when analyzing and debating the federal budget, look at all parts of the budget, not just the parts that are politically popular. If congress is serious about balancing the budget, they need to look at all the avenues.
Here is a simple example of a tax expenditure: (Via Citizens for Tax Justice report)
A simple example of a tax expenditure might be a break that Congress enacts in the corporate tax, giving a particular group of companies a benefit totaling $10 billion. The effect is the same as if Congress simply provided a subsidy through direct expenditures of $10 billion for those companies. Either way, the companies are $10 billion richer and there is $10 billion less to fund public services. In other words, other taxpayers who did not receive the special break have to pay for it through increased taxes or reduced public services.
The approach to evaluating tax expenditures (via Think Progress)
Some of these subsidies make sense. Others warrant a closer look. Funding for those that don’t work should be rightly eliminated. And funding for those that do make sense should continue.
Though tax expenditures are a form of government spending, they feel like tax cuts because they are implemented through the tax code. This makes them politically popular; politicians find it easier to pass government spending programs when they can sell them as tax cuts.
What’s more is that Congress fails to regularly review these tax expenditures, and the government’s budgeting process largely ignores tax expenditure spending. This lack of scrutiny, combined with their popular veneer, makes them a privileged form of government spending that once put in place are hard to dislodge.
Isaiah Poole of the Campaign for America’s Future writes:
Last week Citizens Against Government Waste released the 2010 edition of its highly publicized “Pig Book,” which highlights what the organization believes is questionable government spending. The organization’s website, however, does not show that the organization has ever done an equally comprehensive look at how the government “spends” its ability to bestow favored tax status on individuals and businesses. That’s typical of the one-sided look at the deficit problem that is perpetuated by conservatives and by much of the media. Instead of looking for what can taken away from the elderly and low-income people, any group discussing fiscal responsibility would have to look at how we can identify and eliminate tax breaks that keep us from reducing the deficit and investing in our future.
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