Our guest blogger is Sima J. Gandhi, a Senior Policy Analyst with the economic policy team.
As part of his continuing quest to reduce government “to the size where we can drown it in the bathtub,” anti-tax crusader Grover Norquist now wants to hold government hostage to its own deficits. And he has a good plan for doing this.
Norquist is demanding that spending cuts to tax expenditure programs be paired with tax cuts. He’s asking congressional candidates to sign a pledge to “oppose any net reduction or elimination of deductions and credits, unless matched dollar for dollar by further reducing tax rates.” This means savings generated from cuts to the nearly $1.2 trillion in tax expenditure spending would be immediately eaten up by a tax cut, instead of put toward advancing important priorities like closing the deficit.
Tax expenditures are government spending programs that are delivered through the tax code. They use tax subsidies, such as deductions and credits, to transfer government funds. This type of spending constitutes 25% of government spending, and supports a variety of programs including ones that support low-income housing development; corporate research & development; oil, gas, and timber companies; and even small businesses that purchase SUVs. Some of these subsidies make sense. Others warrant a closer look. Funding for those that don’t work should be rightly eliminated. And funding for those that do make sense should continue.
Though tax expenditures are a form of government spending, they feel like tax cuts because they are implemented through the tax code. This makes them politically popular; politicians find it easier to pass government spending programs when they can sell them as tax cuts.
What’s more is that Congress fails to regularly review these tax expenditures, and the government’s budgeting process largely ignores tax expenditure spending. This lack of scrutiny, combined with their popular veneer, makes them a privileged form of government spending that once put in place are hard to dislodge.
Some policymakers are chipping away at this veneer. Representative Lloyd Doggett (D-TX) delivered a speech on the importance of scrutinizing tax expenditures, the White House proposed cutting tax subsidies for oil and gas companies, and even Congress took a step in the right direction when it cut a $20 billion subsidy to paper producers in order to help pay for health care reform.
But the point is that despite their veneer, they are a form of government spending. That’s why Norquist’s pledge to match cuts in deductions and credits with tax cuts is absurd. Government should rightly cut spending where it doesn’t make sense. But the savings should be used to close our fiscal deficit, pay for the protection provided by police and fire fighters, fund education and healthcare programs, and build critical infrastructure like public roads. Cutting spending and cutting taxes is just another way for saying we should return to a Hobbsian state of nature where life is “solitary, poor, nasty, brutish and short,” a “war of every man against every man.” Come on Norquist, let’s get real. A plan to pair spending cuts with spending is an effective spin on a silly plan to drown the government.