September 19, 2011


Spending in Disguise (DONALD B. MARRON, 7/23/11, National Affairs)

With the United States on track for a third year of trillion-dollar deficits, public debate is now focused on getting America's fiscal house in order. The challenge is straightforward: The federal government spends much more than it collects in tax revenue each year and will continue to do so even after the economy recovers.

The argument over how to close that gap is often dominated -- sometimes debilitated -- by sharp disagreements about how much should come from spending cuts and how much from tax increases. But that division can be misleading. A great deal of government spending is hidden in the federal tax code in the form of deductions, credits, and other preferences -- preferences that seem like they let taxpayers keep their own money, but are actually spending in disguise. Those preferences complicate the code and often needlessly distort the decisions of businesses and families. The magnitude of these preferences raises the possibility of a dramatic reform of the tax code -- making it simpler, fairer, and more pro-growth -- that would amount to simultaneously cutting spending and increasing government revenue, without raising tax rates.

Such a reform would not eliminate the need for serious spending cuts, of course, nor would it take tax increases off the table. But it could dramatically improve the government's fiscal outlook and make the task of budget negotiators far easier.

Posted by at September 19, 2011 5:58 AM

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