(When I refer to "Government" below, I am referring to the Legislative and Executive branches because they determine taxing and spending policy)
You earn $1,000 in income. Government taxes that income at 10%. You pay $100 in taxes. Government then spends that $100 on a program to promote clean air. You are taxed and the government spends it--- a straight up "Direct Government Expenditure" towards a policy goal).
Alternative scenario.
You earn $1,000 income. Government taxes that income at 10% and you owe $100 in taxes. Assume at this moment the Government has your $100. Instead of spending it directly on a program to promote clean air, government returns it to you in the form of a $100 tax credit for buying a hybrid car to promote clean air. You have your $100 back to spend on something specific.
This is referred to Government spending (to accomplish a goal they COULD do themselves with the tax revenue) through the Tax Code---or more simply, a "TAX EXPENDITURE"
A Government Expenditure is when government taxes you and spends the money directly to achieve a policy goal.
A Tax Expenditure is when the government forgoes the tax revenue it WOULD HAVE collected from you and though tax credits and/or deductions allows you to spend it on a specific thing to achieve a policy goal.Below is a list of the most expensive and popular Tax Expenditures. The numbers to the right represent the amount of tax revenue forgone by the Federal government because of the granting of various tax deductions and tax credits to achieve various policy goals. (number is "billions of dollars")
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| Source: Business Insider |
Is there any definite preference for tax expenditure versus direct expenditure, where left and right either agree or disagree?
ReplyDeleteMy kneejerk is that tax expenditure does not increase the size of government, so the right might prefer it... And yet it could achieve objectives the left finds desirable.
It seems to me something they could agree on, so I must be wrong about that.
Art---I am going to have to give you my "I am not an economist. I just play one in a Public School" answer. :)
DeleteLooking at the list or "tax expenditures" listed above, I think the ONLY ones that seem to have bipartisan appeal are the deduction for State/Local Taxes and the Child Tax Credit. Maybe the one for charity deductions, but that seems to be wavering. I rarely hear criticism of the deduction for 401K.
The first one serves to avoid significant double taxation and child tax credit (I think) is a creation of the Republicans and Dems like it fine. Seem like the rest are nods to "the rich" and/or big business interests. I assume the Dems approved of them at one time, but now have buyers remorse.
I would say the rest are opposed by the Dems, but I think they would not do away with them any more than the Reps because of the constituencies (and their lobbyists) they serve.
I suppose each one taken separately achieve a noble goal (for the most part) for a good number of people across most income levels, but when you aggregate them there is definitely a tilt towards the rich.
As I look at the list, my upper middle class self, directly benefits from 7 of the Tax Expenditures. Someday I (or my wife) will benefit from the exclusion of Life Insurance proceeds. Come to think of it, that will be the BIGGEST one I (or my wife) benefits from!!!
Now I am REALLY depressed!!!! :)
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