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Saturday, May 29, 2010

Forbes article on Our Tax Expenditure Problem

YES!! Bruce Bartlett's column in Forbes this week is entitled "Spending Through The Tax Code" and points out that spending in the tax code is just as "bad as direct spending." I encourage you to read the article as Mr. Bartlett highlights and problem and goes through a nice history of the term "tax expenditure."

I've written about this problem for some time now. Tax expenditures for the most part, are no different than spending in some agency's budget.

Except that one big different is that the spending in the tax law is buried and doesn't get annual budget review. That's true really even of temporary tax provisions because the temporary federal provisions (and those of most states) do not also require collection of appropriate data to see if the expenditures are meeting their intended purpose or are still needed, so when they get renewed (which is typical), there is really no review.

Some tax expenditures are more tied to ability to pay, such as personal exemptions, but the vast majority are tax "breaks" - the mortgage interest deduction, charitable contributions, energy credits, etc. Many likely serve some important purpose, such as encouraging home ownership and the work of charitable organizations, but often go beyond their purpose. For example, what is the purpose of allowing mortgage interest deductions on a second home or on a home equity debt? There is none. When that is the case, we have costly, unnecessary and hidden spending that increases our deficit and debt, creates inequities in the law (others are paying for someone else to get the unnecessary spending benefit) and they make the tax law more complicated.

I've got more, including a review of some California spending buried in the tax law that should be on the cutting table along with the direct spending that legislators instead focus on - here. And, I had an op ed in the San Francisco Chronicle on the topic - 'Spending problem?' - some of it's hidden in our tax laws (2/10/08). This problem has been raised by many for many years, but unfortunately, until more members of the public know that spending is just not what we see in government agency budgets, we'll keep on having deficits, a growing debt, inequities and a complicated tax system.

And, I've written about this and other budget problems that lead to growing debts - Transparency and the FY 2011 Budget (AICPA Tax Insider, 2/10) - it points out the lack of transparency we often have.

What do you think?

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