"Eliminating Tax Expenditures" is Left-Wing Code for "Raising Taxes"


Posted by James Paul on Friday, July 1st, 2011, 12:25 PM PERMALINK


Cato Institute Senior Fellow Dan Mitchell explains how the left will attempt to raise taxes on American families and small businesses:

“The real threat is back-door hikes resulting from the elimination and/or reduction of so-called tax breaks. The big spenders on the left are being very clever about this effort, appealing to anti-spending and pro-tax reform sentiments by arguing that it is important to get rid of ‘tax expenditures” and “spending in the tax code.’”

Mitchell recommends that the loopholes be closed through a fundamental overhaul of the tax code. He also draws an important distinction between tax breaks and spending:

“I recently warned, however, that GOPers shouldn’t fall for this sophistry, noting that ‘If legislation is enacted that results in more money coming into Washington, that is a tax increase.’ I also explained that tax breaks are not spending, stating that ‘When politicians tax (or borrow) money from one person and give it to another, that’s government spending. But if politicians allow a person keep more of their own money, that’s a tax cut.’

To be sure, the tax code is riddled with inefficient and corrupt loopholes. But those provisions should be eliminated as part of fundamental tax reform, such as a flat tax. More specifically, every penny of revenue generated by shutting down tax preferences should be used to lower tax rates. This is a win-win situation that would make America more prosperous and competitive.”

This analysis is consistent with ATR’s position on the elimination of tax expenditures, which must be revenue neutral and part of a broader tax reform effort:

“There’s a lot of talk in Washington about eliminating some of the $1.2 trillion in annual ‘tax expenditures’ to cut the deficit. Supporters of this approach (like President Obama and Senator Coburn) pretend that this is simply another way to cut spending.  It is not.  Rather, every deduction and credit in the code which is repealed is a tax increase.  Government spending doesn’t go down one penny (in fact, Washington will simply spend the tax hike money).  If a credit or deduction is repealed, it should be replaced either with lower rates, or with new/bigger deductions or credits elsewhere.  That is called tax reform, and it must be revenue neutral.”

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