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October 7, 2005
Reexamining tax expenditures
Apropos my earlier posting on the need for reexamining our tax code for the I-Cubed Economy based on the experience of the American Job not-Creation Act, GAO has recently released a study on tax expenditures. Their findings are disturbing:
Whether gauged in numbers, revenues forgone, or compared to federal spending or the size of the economy, tax expenditures have represented a substantial federal commitment over the past three decades. Since 1974, the number of tax expenditures more than doubled and the sum of tax expenditure revenue loss estimates tripled in real terms to nearly $730 billion in 2004. The 14 largest tax expenditures, headed by the individual income tax exclusion for employer-provided health care, accounted for 75 percent of the aggregate revenue loss in fiscal year 2004. On an outlay equivalent basis, the sum of tax expenditure estimates exceeded discretionary spending for most years in the last decade. For some budget functions, the sum of tax expenditure estimates was of the same magnitude as or larger than federal spending. As a share of the economy, the sum of tax expenditure outlay-equivalent estimates has been about 7.5 percent of gross domestic product since the last major tax reform legislation in 1986.
All federal spending and tax policy tools, including tax expenditures, should be reexamined to ensure that they are achieving their intended purposes and designed in the most efficient and effective manner.
In other words, our budget is on auto-pilot with no one looking at whether or not our policies are working. Many of these tax deductions have economic and/or socially worthy purposes -- the charitable deduction, the homeownership deduction, the various savings deductions (IRS, 401(k)s, etc). But at least we need to periodically look at these policies. Spending programs are subject to such a periodic review; so should tax breaks. Without such a review, we are allowing policies designed for the industrial era (and even the agricultural era) to dominate the Federal budget as we make the transition to the I-Cubed Economy. And we don't even know what and where all these policies are! Not a good sign in what we like to call the "information" era.
Posted by Ken Jarboe at October 7, 2005 11:14 AM
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