3Center or American Progress | Six Principles or Tax Expenditure Reorm: Common-Sense Guidelines or Policymakers
Tis poin was underscored by a panel o prominen economiss and ax expers esiying beore he Senae Finance Commitee on Sepember 13. As ormer Federal Reserve BoardChairman Alan Greenspan old he senaors:
Cuts in tax expenditures can be alternatively structured, and viewed, as cuts in out-lays rather than a reduction in revenues. Te deduction for interest on home mort- gages, for example, could just as easily have been reconstituted as a subsidy payment to homeowners. Similarly, oil and gas depletion allowances could be restructured assubsidies to producers.
Presiden Ronald Reagan’s chie economic advisor, Marin Feldsein, likewise esied ha when ax expendiures are reduced, “he economic eec is he same as any oher reduc-ion in governmen oulays.” And Edward Kleinbard, ormer direcor o Congress’s JoinCommitee on axaion, explained ha “deliberae Congressional subsidy programs bakedino he ax code…are a orm o governmen spending, no ax reducions.”
Once you recognize ha ax expendiures are simply a hidden orm o spending, i makes nosense o slash ederal programs and enilemens while leaving ax expendiures o he able.Tis is especially rue because he Budge Conrol Ac, enaced in Augus, subjecs ohercrucially imporan ederal programs o signican cus in he coming years. Caps imposed by he Budge Conrol Ac will cu discreionary spending by nearly $1 rillion over henex 10 years. Te resul is ha discreionary spending would decline rom 9 percen o gross domesic produc, or GDP, o abou 6.2 percen by 2021, which, as CongressionalBudge Oce Direcor Douglas Elmendor noes, is “ well below he 8.7 percen averageover he pas 40 years.”
Wih discreionary spending already subjec o hese caps, uuredeci reducion mus be balanced across he ederal budge, including on he revenue sideo he ledger. o be sure, he bes and mos sraighorward way o raise signican revenuemigh simply be o allow he Bush ax rae cus or op income earners expire on schedulea he end o 2012. Bu even hose who are adaman abou keeping all ax raes where hey are now should be open o reducing hidden ax code spending.Ta doesn’ mean ax expendiure reorms need o happen now. Te op prioriy oday should be job creaion, no deci reducion. And overly severe cus o ax expendi-ures, like all scal conracion, should be avoided in he near erm while he economy sruggles o recover. Bu lawmakers should pursue an approach ha gradually reorms orphases ou ineecive ax expendiures.