Tuesday, March 29, 2011
Interesting tax expenditure example
The analysis to California proposal SB 508 includes an interesting observation about tax expenditures that I had not heard before. Here is it: "the late economist David Bradford stated that instead of purchasing weapons systems from defense contractors, Congress could instead provide a Weapons Supply Tax Credit for defense contractors equal to the cost of goods sold. Defense spending would then vanish from the spending side of the federal government's accounting ledger, and revenues would concomitantly decline by an equal amount." That's a good example of how spending, such as for higher education, K-12 education, health care, welfare and a lot more, gets hidden because made via tax deductions, exemptions and credits rather than direct spending.