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Last weekend, while tea party protestors flocked to
Four decades ago, former Treasury Assistant Secretary for Tax Policy Stanley Surrey invented and popularized the concept of tax expenditures, which he saw as a method politicians often used to enact stealth spending programs. So, instead of the Energy Department providing grants to encourage utilities to use wind power or other forms of alternative energy, government now lets these businesses claim renewable energy credits to offset their tax liability. Instead of the Department of Housing and Urban Development subsidizing the construction of low-income housing directly, we let developers claim tax credits for projects selected by state housing authorities. As
Tax expenditures make a mockery of official estimates of government’s size. Many years ago, the late Princeton tax economist David Bradford, who served in both the Ford and George H.W. Bush administrations, showed how government could slash the defense budget without shrinking national security one bit. Instead of purchasing armaments from defense contractors, the Pentagon could issue rights to claim “weapons supply tax credits” to these same firms. Government spending and tax collections would drop, but the munitions inventory wouldn’t.
True, the measurement of tax expenditures is a bit murky and people disagree about which provisions are true tax cuts and which are simply disguised spending. While we wonks will continue to argue these fine points, it’s safe to say that, by any definition, government is far bigger than official budget estimates portray. But don’t expect to hear any complaints from the tea-party people, who would be the first to denounce any effort to control this hidden pseudo-spending as a dreaded tax increase.
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