Spending through the tax code

Those who pledge not to raise taxes yet are comfortable with spending cuts make an artificial distinction between spending and tax cuts which look and smell no different from spending.

By , Guest blogger

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    The spending/taxing dichotomy is a false one, the author argues.
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This is an old point that’s been made many times over, so I won’t belabor it, but reading this AMs paper and reflecting on our fiscal debate, I was reminded of one particularly irrational aspect of the thing.

Those who pledge not to raise taxes yet are comfortable with spending cuts make an artificial distinction between spending and tax cuts which look and smell no different from spending.

Here’s a good e.g. from my CBPP colleague Bob Greenstein:

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A parent with low or moderate income may be able to obtain a subsidy to help her defray child care costs, with the subsidy being provided through a government spending program. A parent higher on the income scale also can receive a government subsidy that reduces her child care costs, but this parent’s subsidy is delivered through the tax code, via a tax credit.

It does not make much sense to make the tax-code subsidies sacrosanct and the program subsidies a target for deficit reduction merely because one type of subsidy is delivered through a “spending” program and the other is delivered through the tax code.

This also relates to a point Milton Friedman used to make, as Tyler Cowan reminded me in this AMs NYT: to spend is to tax. (It’s also another reminded of how yesterday’s conservative saints, like Friedman and Reagan, the latter of whom presided over many tax increases, would be kicked out of today’s party.)

I’m as dovish as they come on the deficit, but over the long run, you have to live within your means. So if you’re unwilling to raise the revenue we need to cover our spending, you either cut that spending to the point where government is disabled, or you postpone the payments to be made by later generations.

At the end of the day, the spending/taxing dichotomy is a false one.

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