Ezra Klein outlines ways the U.S. could cut billions and billions in government spending.
Some might use different terminology for the government practice of sending money back to people on home purchases — the more expensive the home, the more you get back. Or payments to employers who offer health insurance to employees. Or refunds on charitable contributions. These and many others are known as tax expenditures, though taking them away would be called tax increases.
These tax expenditures have emerged as the central sticking point in budget negotiations. Democrats want new revenue to be part of the deal, but because Republicans adamantly oppose raising marginal tax rates, Democrats have instead proposed cutting expenditures by about $1 trillion. They thought that would be more palatable to Republicans, but thus far they’ve been wrong: Republicans say that increases in revenue are increases in taxes. It doesn’t matter whether the money comes from closing loopholes or raising rates.
Some of their brightest policy lights, however, disagree. Former Federal Reserve chairman Alan Greenspan says that tax expenditures are “misclassified” because they are identical to outlays. Gregory Mankiw, who led President George W. Bush’s Council of Economic Advisers, calls expenditures “stealth spending implemented through the tax code.” You can’t find a serious economist on God’s green Earth who thinks the economy differentiates between cutting a government program that subsidizes health insurance and cutting an equally large tax break that subsidizes the purchase of health insurance.