economic policy

Tax Expenditures Flying Under the Radar

Many of the tax breaks in the Federal tax code are classified as tax expenditures because, like many government spending programs, they subsidize particular economic activities or help particular groups of people. Tax expenditures contribute to the federal deficit, but don’t appear in the Federal budget and generally fly under the radar.

They’re Huge

Although you rarely hear tax expenditures being discussed, they are huge: The Congressional Budget Office (CBO) expects 2017 tax expenditures to be 8% of GDP. This graph from the CBO shows just how big a deal they are by comparing them to other expenses and to sources of revenue:

CBO comparison of Tax Expenditures, Revenues, and Selected Spending
Revenues, Tax Expenditures, and Selected Components of Spending in 2017

You can see that tax expenditures dwarf defense spending, or Medicare spending, or Social Security spending. They are almost of the same magnitude as individual income tax revenues.

Tax expenditures are a big deal and worth understanding!

Read More »Tax Expenditures Flying Under the Radar

Real Tax Reform: Desiderata

The word desiderata describes perfectly what I want to discuss in this post on real tax reform. I first encountered it taking Professor Fred Brooks’s computer architecture course in grad school in 1977. In his 2010 book, The Design of Design, Brooks defines desiderata as the secondary objectives of a design.  Using design of his beach house as an example, the primary goal is to build a beach house. The desiderata are things like being able to survive hurricanes, showcasing the stunning views, and being able to seat and sleep 14 people.

I previously discussed three goals for a tax system, the most important being to raise funds for public services.  Let’s agree for now not to debate what public services are appropriate nor how much money should be spent to provide those services. Whatever the amount, the money must be raised. That’s the goal.

What are the desiderata for a reformed tax system?Read More »Real Tax Reform: Desiderata

Real Tax Reform

Not Tax Reform

The misleadingly-named Tax Cuts and Jobs Act of 2017 is law, but it is not tax reform.  Whatever it means for various taxpayers and corporations remains to be worked out. As one writer put it:

Ultimately, the new tax rules are actually complex enough that it will likely take months or even years for all of the new tax strategies to emerge … On the “plus” side, though, at least ongoing tax complexity means there will continue to be value for tax planning advice?

What it means for the US economy is equally murky.

Read More »Real Tax Reform