EconomistMom.com
…because I’m an economist and a mom–that’s why!

EconomistMom.com

Making Tax Expenditures Sound More Like Other Spending

May 21st, 2011 . by economistmom

I’m on a mini vacation this weekend, looking out at the Pacific Ocean and appreciating the here and now but also contemplating my goals for the future, both personal and professional.  Sometimes these goals overlap, and most people would find it strange that I’m moved to blog on fiscal policy even while on vacation.  But you see, I’ve made myself a personal commitment to work harder on the issue of tax expenditures, tax reform, and bipartisan solutions to the deficit problem over the next few months (to few years, I anticipate).  I want to better explain the ways in which (most) tax expenditures are economically equivalent to spending-side subsidy programs.  I also want to look at the reform of the tax system and reductions in these tax expenditures from a fiscal policy, and not just tax policy, perspective.  This entails demonstrating the ways in which these tax-side spending programs are an even better target when it comes to deficit reduction than most spending-side programs–for reasons of economic efficiency, income distribution (fairness), and/or fiscal sustainability (the projected growth in their cost and hence their contribution toward the deterioration in the fiscal outlook over the next several decades).

To do this effectively, we have to start talking about tax expenditures more like we talk about direct spending, regardless of the asymmetry that still exists in the official federal budget process because tax cuts are not annually appropriated–even when they are enacted to expire after only a year or two.  (For this reason, most tax cuts are more akin to entitlement programs rather than annually-scrutinized discretionary spending.)  So I’m going to spend some time trying to change our vocabulary on tax expenditures in highlighting particular types of tax expenditures as examples of spending our society might rather cut than the direct spending programs the small-government types tend to limit their attention to.

While President Obama and his Administration have been good at making the general point that there’s a lot of federal spending that’s run through the federal tax code (around $1 trillion/year, as much as all of discretionary spending combined), they have not been very good at following up with an internally-consistent set of budget proposals.  The President still tends to emphasize “tax reform” (such as in his corporate tax reform suggestions) as a revenue-neutral proposition, seeming to buy into the Republican view that raising revenue as a share of GDP would grow government even if higher revenues come from broadening the tax base and reducing tax preferences (”tax expenditures“).  And whenever the President talks about the need for revenue-side solutions to the deficit problem, it’s not so much in the context of a more efficient and fair tax system via “tax reform” (that would reduce those tax expenditures fairly broadly), but rather in the framework of “it’s only fair” that we raise “taxes on the rich”–no matter how that’s done, via broadening the tax base or increasing tax rates.

So even when the President actually embraces the idea of reducing tax expenditures (such as limiting itemized deductions) to raise revenue and reduce the deficit, his limiting that policy to only households with incomes over $250,000 makes it sound less like a smart way to cut spending and much more like just another proposal to raise taxes on the rich.  And even though Administration officials like to point out that they don’t engage explicitly in “class warfare” in their rhetoric about those taxes on the rich (because they don’t blame the rich for being rich nor suggest they deserve to be punished for being rich), the fact that they want to limit revenue increases of any sort to those that would raise burdens only on those over $250,000 makes it sound a lot like class warfare to a lot of people, especially to those Republicans whom the Administration supposedly wants to bring on board for bipartisan solutions to the deficit problem.

So while the Republican pledge to not raise taxes in any way, shape, or form at any time is obviously the much bigger road block in achieving meaningful, smart, and bipartisan deficit reduction (which will require a mix of spending cuts and revenue increases), I actually think the secret “open sesame” code is more in the hands of the President and the Democratic leadership in Congress–and all of us who are not entrenched in the “no new taxes” view.  We need to do a better job framing our preferred approach of including revenue-side ways to reduce the deficit, to make it clearer that reducing tax expenditures means reducing spending and reducing the deficit in a fair and economically-efficient and even widely preferable way.

I’ll be working on this for awhile.  Hope you’ll stay tuned.

58 Responses to “Making Tax Expenditures Sound More Like Other Spending”

  1. comment number 1 by: AMTbuff

    Anyone who wants to think and write more intelligently about tax expenditures should read what the government’s experts have written about the subject at http://www.jct.gov/publications.html?func=startdown&id=1196

    In particular, readers need to beware of hidden assumptions when those assumptions are highly debatable and have been thoroughly debated for decades.

    Tax breaks are NOT viewed, except in the narrowest mathematical focus, as fully or even mostly equivalent to spending programs. They are qualitatively different, not merely structurally different. Mathematical equivalence of a spending program to a hypothetical tax break does not permit any qualitative evaluation of one version to be attached to the other version. This is the crucial but faulty step in advocates’ arguments, and readers can safely stop reading an argument when that step appears.

    If you read the paper I linked you will know more than 90% of the people who use the term “tax expenditure”, and more than 99.99% of the general public

    If you are short of time and can only read parts of the paper, start with the following:

    - Section 6 on page 7.

    - The top of page 19.

    - The discussion of “a more objective baseline” at the bottom of page 25:
    Under this approach, a “tax expenditure” is a provision that satisfies two conditions: First, the provision is “special” in that it applies to a sufficiently narrow class of transactions or taxpayers to permit the specification of a program objective that could be assigned to an existing agency other than the IRS and be administered with appropriated funds. Second, there must be a “general” rule to which the “special” provision is a clear exception.

    - Section III.A. starting on page 29 and section III.E. starting on page 35. Don’t miss footnote 82 featuring our very own EconomistMom!

  2. comment number 2 by: Gipper

    I got an idea! Let’s define the progressive tax code as a tax expenditure!

    You see, everyone who is not paying the 38% marginal rate is benefiting from an implicit deduction that reduces potential revenue.

    The term tax expenditure is meant to sow confusion and masquerade Democrat refusals to reduce spendng as a percentage of GDP. Once Democrats start bragging that cutting “tax expenditures” is equivalent to a “spending cut,” then we’ve entered an Orwellian twilight zone.

    Truthfully, Economistmom, that was the most pathetic post I’ve seen from you. Let’s keep things simple: revenues and expenditures as percentage of GDP must be the units of measurement to foster uniform and consistent communication between parties in this debate.

  3. comment number 3 by: USCitizen

    Very interesting thoughts, EMom. Looking forward to more!

  4. comment number 4 by: Rob

    A “tax expenditure”; now there’s a double plus ungood figure of speech.

    It’s been obvious for some time that there is a significant cohort of “progressives” who believe that we (citizens) are owned lock stock and barrel by the government and we should be grateful for whatever our masters deign to let us keep from our earnings. Thanks for at least being honest about your twisted view of government’s place in our lives, emom.

  5. comment number 5 by: SteveinCH

    Well, I’m of two minds about this. On the one hand, as we should all know by now, I think the label “tax expenditure” is of little practical utility. On the other hand, I do believe there are policies in the tax code that should be ended. Indeed, I believe most special exceptions (maybe all) in the tax code should be ended, although I believe it should be done first in a revenue neutral way.

    So, if this turns into a debate about classes of things and naming things, it will probably be a waste of time, but a good debate on tradeoffs among specific policies is always a good debate, given the current situation.

    As to Gipper’s point about the rate table, it’s a point I’ve made several times before. Proponents of the “tax expenditure” theory don’t much like it however since it demonstrates how silly the concept is to begin with.

  6. comment number 6 by: Gipper

    SteveinCH,

    By all means, I’m with Economistmom on ending the myriad of deductions, broadening the tax base, and eliminating perverse incentives. However, what irks me is Economistmom’s insistence that this is somehow equivalent to cutting spending.

    From the mathematics perspective of shrinking the deficit, it certainly is. However, she is politically tone deaf if she believes that voters can be bamboozled into buying into her “framework” that she’s for spending cuts when the percentage of GDP spent by the federal government is not decreasing.

    It’s dishonest, and it’s a perversion of language. In fact, it’s so toxic that the left has nearly made it impossible for reasonable Republicans to aggressively support reduction of tax expenditures. My recommendation to EconMom is to zipper up. Her writings on this topic only raise Conservative suspicions that she advocates a sneaky and cloaked agendas for revenue increases without genuine spending cuts are what she is interested in.

  7. comment number 7 by: SteveinCH

    Gipper,

    FWIW, I’d ignore the discussion about whether it is or isn’t equivalent. Something is a good idea or it’s not. The label is irrelevant.

  8. comment number 8 by: Underwriterguy

    What say we start the discussion with some specifics to get a feel for the “room.” I nominate mortgage interest deductions and the non-tax-ability of employers’ contributions for employee health insurance. One gigs the “rich” and one the unions. Everyone on board? Can we expect leadership form POTUS? Discuss.

  9. comment number 9 by: SteveinCH

    UG,

    On board with what exactly? See this is a perfect example of my point. Are you asking if I’m on board with eliminating those policies? My answer is it depends on what else you have in mind at the same time. If that were the sum total of your fiscal plan then no I’m not on board. Even if it weren’t, I struggle with a quick elimination of the MI deduction given where housing is at the moment.

    Or are you asking whether we are on board with calling those things tax expenditures? If that’s the question, the answer I have for you is who cares what you call them, let’s go back to question 1.

  10. comment number 10 by: Vickie Pynchon

    This is not only a perfect re-frame of the problem, but in fact the truth of the matter. Tax exemptions are direct subsidies to people and businesses engaged in activities the government wants to encourage. If the government wanted to encourage college graduates to enter the teaching profession, it could exempt, say, the first $25,000 of their yearly income from taxation. If my arithmetic is right (I’m a lawyer, so, you know, not being able to do math is the reason we GO to law school) that’s a subsidy of $6,250 to school teachers if they’re in a 20% tax bracket (I picked the tax bracket randomly). What’s the actual difference between foregoing tax revenues in the sum of $6,250 per teacher and simply giving each teacher $6,250 per year as an “entitlement?” For politicians who have locked themselves into a “no new revenues” box canyon, re-framing tax breaks to, say oil companies, as spending, creates the true gray zone of ambiguity in which negotiators can find creative solutions to frighteningly intractable problems, like a state or federal government’s inability to govern. It also permits “self talk” to be made “public talk.” The “self talk” that expresses doubt, that sees the world as not good vs. evil, black vs. white, spending vs. taxing. When we’re free to express doubt about our opinions, we become open to new ideas and what this country really most needs now is new ideas, not the same tired rhetoric. So I find this post incredibly important (primarily, perhaps, because it’s written in ENGLISH so that this Lit Major/lawyer can at last make sense of something about economics that has persistently eluded her). So please DO continue this line of thinking and ignore the people who would shout you down, remembering that behind every accusation is a cry for help. BRAVA!

  11. comment number 11 by: AMTbuff

    No serious economist would claim that revoking a mass-market tax break like the mortgage interest deduction would have the same effect on the economy as reducing mass-market government spending such as Social Security payments by the same total dollar amount. Nor would any serious economist deny that there is some degree of similarity between a mass-market tax break and mass-market outlay to subsidize an activity. The truth is complex.

    Read the JCT paper if you want to see why this issue is anything but black and white.

    Tax reform is desirable in its own right. One can favor tax reform with accepting the faulty contention that one dollar of tax break affects the economy to the same degree overall as one dollar of spending regardless of how differently the two options are targeted.

    Everyone knows that different spending programs have different effects per dollar, and the same is true for tax subsidies and other tax breaks. The actual effect on the entire economy needs to be evaluated for each spending program and each tax break. Looking only, or even primarily, at the revenue effects is conceptually wrong.

    As an example, suppose that the charitable deduction increases giving by ten times the foregone revenue. That would make it a tax break with negative cost, replacing more than one dollar of government spending for each dollar of foregone revenue. Conversely if charitable giving did not increase at all, the foregone revenue alone would be an accurate measure of the tax break. Most people who use the term tax expenditure implicitly assume the latter is the case for every tax break. Don’t accept conclusions which depend on such hidden assumptions.

  12. comment number 12 by: Brooks

    Gipper,

    It’s incredibly lame for you to say Diane is being dishonest and to tell her to “zipper up” on this topic just because you don’t get it. Your comments on this thread remind me of a line from an old Woody Allen movie, Take the Money and Run. Speaking of Woody Allen’s character, another character says “He told everyone he was a gynecologist, but he didn’t speak no foreign languages. Who’s he kiddin’ ?”

    What about me — do you think I’m part of this conspiracy to “bamboozle” the American public on this issue, or do you think I’ve been duped? Please let me know, because I’d really like to know if I’m a perpetrator or a victim.

  13. comment number 13 by: Brooks

    Steve,

    Re: I’d ignore the discussion about whether it is or isn’t equivalent. Something is a good idea or it’s not. The label is irrelevant.

    That’s a non-sequitur. Just because the label is irrelevant doesn’t mean it’s not worth discussion of the nature of some provision — whether it’s incentives, effects, rewards/punishments are closer in nature to spending or to tax rate cuts.

    As we look to ways to reduce deficits, there’s a REASON to view spending cuts differently than how we view higher tax rates, and there’s a reason conservatives generally prefer the former:
    - Because government spending means politicians and bureaucrats deciding and/or influencing how to direct people’s money rather than people (individuals) deciding how to spend money they have acquired.
    - More generally it means government interfering with markets (buyer and supplier behavior) and thus meddling with society’s allocation of resources.
    - Because government spending usually means wealth redistribution.
    - Because government spending must eventually be paid for (and in the meantime is deficit-financed), so more spending ultimately requires higher taxation, primarily of income, which reduces incentives to work and invest, and in turn harms the economy.

    So reducing spending means less of all that stuff conservatives generally want less of.

    Raising tax rates, on the other hand, reduces incentives to work and invest, and in turn, harms the economy.

    So if one is a conservative, and the question is “Do I want to get rid of Policy M ?”, and Policy M is a tax credit or deduction for purchasing Product X, it can indeed be helpful to get a sense of whether Policy M is more like spending in nature or more like a tax rate cut. It’s not the label that matters; it’s the nature of the policy.

    Now, what’s bizarre about your confused view of this issue is that if Policy M were somehow changed to explicit expenditure form (e.g., changing a tax credit to a voucher, if the value of the voucher couldn’t exceed one’s tax liability) you’d view it as “higher spending”, “bigger government”, “higher taxes” and “liberal”, but if Policy M is in tax credit form you’d call it “lower taxes”, “smaller government”, and “conservative” — even if it were the same in every substantive way (the offer/incentive, and the effects on everyone and everything) as Policy M in explicit expenditure form. All because of a completely non-substantive difference in cash flows, like the difference between your giving me $1 vs. your giving me $2 while I give you $1. It’s so obviously nonsensical it’s amazing to me that you persist with it.

    As a result of your persistent confusion, you generally oppose reduction of tax credits and deductions for buying government-designated products UNLESS such reductions are accompanied by a tax rate cut that yields revenue-neutrality, yet you wouldn’t place that condition on some voucher that was essentially the same in every substantive way — you wouldn’t say “Don’t cut that spending unless we use the extra money in the Treasury to cut tax rates until the Treasury ends up with the status quo ante”; instead you’d just say “Cut that spending. Whether the extra money in the Treasury is used to cut tax rates or to reduce the deficit (or some combination), it’s better than the spending”. Yet you require the tax rate cut condition before you’ll support essentially the same policy if it were in explicit expenditure form, on the basis of your aforementioned confusion. And you either somehow think that makes sense, or you are so pretending.

  14. comment number 14 by: SteveinCH

    See how useless the approach to labeling is. Wouldn’t life be simpler if we dealt with policies as opposed to trying to group those policies under labels?

  15. comment number 15 by: Brooks

    AMT,

    I really wish you’d try to get Steve and Gipper to understand why a narrowly utilized tax credit/deduction for purchasing Product X is more like spending than it is to a tax rate cut.

    If you do, I strongly suggest you keep it focused rather than presenting in a single comment a more holistic discussion of why you think this or that is NOT like a narrowly utilized provision. Just address the narrowly utilized provision.

    I realize sometimes on blogs people develop a sort of camaraderie with others who seem ideologically like-minded (or who have had a confrontation or two with the same third party), and due to a desire to maintain that camaraderie they often stay away from telling someone on their “side” that he’s wrong about something. I hope something like that doesn’t keep you from trying to help Steve understand at least the basic concept here.

    So if you’re willing to do what I think would be a small public service, please go ahead and explain to Steve and Gipper why a narrowly utilized tax credit or deduction for purchasing some government-designated product is more like spending than a tax rate reduction.

    Maybe they’ll listen to you.

  16. comment number 16 by: Brooks

    Steve,

    That was really dumb. Sorry, but it must be said.

    I explained that the labels don’t matter, but considering the nature of policies — incentives, effects, etc. — IS important, and…oh never mind. Either deliberately or due to some mental block, you just aren’t really thinking.

    But I do hope AMT gives it a try. I don’t agree with him/her on some aspects of this issue, but I think he gets it at least for a narrowly utilized tax credit or deduction for purchasing Product X. And you apparently don’t. If he/she is kind enough to try to help you, I hope you’ll engage in good faith.

  17. comment number 17 by: Brooks

    Steve,

    Oh, and how ’bout this. Let’s say we have a tax credit for purchasing Product X and only 1% of taxpayers purchase Product X and utilize that tax credit.

    Let’s assume you don’t think society gains much from purchases of Prodcut X such that the positive externalities would justify the government sending out vouchers for purchasing it (if the dollar amount of the each person’s voucher were the same as what he can currently save on taxes with the tax credit). In other words, you don’t think it’s worth taxpayers subsidizing purchases of Product X.

    Now then, would you generally be inclined to end the tax credit for Product X, or would you defend that tax credit unless it’s elimination were accompanied by a tax rate reduction producing revenue-neutrality?

  18. comment number 18 by: Brooks

    ALL,

    http://dmarron.com/2011/05/24/cut-spending-by-raising-taxes/

  19. comment number 19 by: Brooks

    Gipper writes:

    The term tax expenditure is meant to sow confusion and masquerade Democrat refusals to reduce spendng as a percentage of GDP. Once Democrats start bragging that cutting “tax expenditures” is equivalent to a “spending cut,” then we’ve entered an Orwellian twilight zone.

    And:
    It’s dishonest, and it’s a perversion of language. In fact, it’s so toxic that the left has nearly made it impossible for reasonable Republicans to aggressively support reduction of tax expenditures. My recommendation to EconMom is to zipper up. Her writings on this topic only raise Conservative suspicions that she advocates a sneaky and cloaked agendas for revenue increases without genuine spending cuts are what she is interested in.

    Hey Gipper, can you explain to me why Martin Feldstein is participating in this conspiracy of the left?
    See
    http://online.wsj.com/article/SB10001424052748704518904575365450087744876.html (If you can’t view whole piece there, go to http://www.nber.org/feldstein/wsj07202010.html )

    and

    http://www.nytimes.com/2011/05/05/opinion/05feldstein.html?_r=1

  20. comment number 20 by: Brooks

    And Greg Mankiw says simply “Wise words from Marty Feldstein” of Feldstein’s 7/20/10 WSJ Op-Ed (one of the two Op-Eds to which I linked to in my prior comment) http://gregmankiw.blogspot.com/2010/07/government-spending-by-another-name.html

    Gipper, how did the left rope Mankiw into this obvious, “Orwellian” conspiracy?

  21. comment number 21 by: Brooks

    Gipper,

    I assume your namesake is Ronald Reagan. Well, he said his favorite magazine was National Review. Little did he know that National Review would become part of the vast, Orwellion, left-wing conspiracy to bamboozle the American public re: tax expenditures. Check out the following.

    http://www.nationalreview.com/agenda/253153/yes-virginia-there-such-thing-tax-expenditure-josh-barro

    http://www.nationalreview.com/agenda/39109/len-burman-tax-expenditures/reihan-salam

    http://www.nationalreview.com/corner/263985/tax-expenditures-nicole-gelinas

  22. comment number 22 by: Brooks

    Gipper

    Even Redstate’s Erick Erickson is part of this leftist agenda you see so clearly. Here he’s pointing out that a tax credit can be essentially like spending rather than like a tax rate cut http://www.redstate.com/erick/2011/03/29/on-ethanol-conservatives-should-stand-with-tom-coburn/ Boy, isn’t that just so…Orwellian! It’s almost enough to bamboozle me.

  23. comment number 23 by: SteveinCH

    Brooks,

    I’d be happy to eliminate the mythical policy you describe without lowering tax rates. Sadly, said mythical policy doesn’t exist. Most policies are far broader than affecting 1% of the population.

    What you fail to realize is that the argument tends to go like this (and Diane just made it again in her most recent post).

    1. We can conceptually define a policy that shouldn’t exist because the underlying policy goal isn’t worth pursuing. We’ll call these things “tax expenditures”

    2. We can add up a whole bunch of exceptions in the tax code and we get a very large number when we compare the revenue raised by said alternative tax code and the current tax code.

    3. Since all these exceptions are all “tax expenditures”, they should all be eliminated without changing the rate table and this is the best way to reduce the deficit.

    See, where I’ve objected to the argument all along is in steps 2 and 3. In step 2, you really do need an alternative tax code for comparison or the discussion is meaningless. And in step 3, you’ve moved from a narrow definitional argument (point 1) to a very broad policy argument with a whole lot of logical hand waving.

    If you limit yourself to the very narrow (and I mean very narrow) set of provisions of the tax code that you have described in your (again) theoretical example, I think those are bad policies regardless of how labeled. When you move to raising revenue by hundreds of billions of dollars per year, you walk far away from those sorts of theoretical examples.

    This is before you get to the politics of it. In our current society of political demonization, reductions in tax expenditures will produce the exact same result as increases in tax rates. Some enterprising soul will do the calculation of how much more the “typical” HH of a particular construct will pay and people will go crazy. But there’s a good logical reason the people will go crazy, something that those in favor of an ever larger share of output for government will never admit.

    The fundamental problem is that those who want to solve the deficit primarily by raising effective tax rates (total taxes/total income) put no effort into justifying the massive runup of government spending, hiding behind vague conversations about generational shifts and simply assert that we MUST spend more.

    Once again, I could care less about the label and the narrow example is fine by me. But, as you will see, that’s not where the policy discussion is going and I see no reason to facilitate massive and unnecessary tax increases by another name.

    Let me go off topic to make my favorite argument.

    In 1980, inflation adjusted per capita Federal spending was $8700. In 2010, it was $16700 and increase of about 90 percent. Had inflation adjusted per capita spending been held flat, we’d have a surplus even with current depressed revenue collection.

    Those who want wholesale changes in the tax code to raise more revenue should start by explaining why government spending should rise faster than population and inflation. Indeed, it’s fair to argue that government spending should rise more slowly than this as some programs have fixed costs that should not increase proportionally with population.

    A better way to address the problem would be to zero base the entire budget on both sides. Let’s start by agreeing on the amount of government spending in constant dollars that is appropriate. Is $16,000 enough or should it be $20,000 or should it be $12,000 instead?

    Having agreed to that, we can then devise a tax system that best (most fairly and with least distortions) hits that goal. I’d be happy with a flat tax with a large personal exemption where every year the exemption is adjusted up or down to balance receipts and constant dollar spending per capita. Note that the exemption would generally be adjusted up since wage growth generally exceeds inflation.

    And there you have it…a solution that doesn’t even require the word tax expenditure to implement. Which is, in effect my point.

  24. comment number 24 by: Brooks

    Steve,

    Well, as I said repeatedly earlier in my efforts to get you to address my points and questions, you seemed to insist upon responding to your perception of what other people were saying rather than addressing my points/questions. No matter what I said, your responses reflected a fixation on your sense that others were applying an excessively broad definition of the term “tax expenditures”. Anyway, enough meta discussion.

    I’m glad to see you’d “be happy to eliminate” the narrowly utilized tax credit I described. But what would you say to a conservative who defends that narrow tax credit on the basis that eliminating constitutes a “tax increase” and “bigger government”?

    Re: Those who want wholesale changes in the tax code to raise more revenue should start by explaining why government spending should rise faster than population and inflation

    You don’t realize it but that comment reflects the very conceptual problem I’ve been talking about. By simply pointing to explicit expenditures alone as “spending”, you totally miss tax credits and deductions that are more like spending than like tax rate cuts. Instead of government sending out a check or voucher to subsidize something, it provides the same incentives and generates the same results (for the beneficiaries, the Treasury, other taxpayers, distorted markets, etc.) via the tax code, and you then don’t count them as “spending” even though they are essentially the same as they would if in explicit expenditure form, which you would count as spending.

  25. comment number 25 by: SteveinCH

    Brooks,

    If I used your broader definition of spending, that would make the growth of government even larger. However, we have no agreement on how much “spending” is done via the tax code so we can’t do the analysis.

    I would tell the conservative that a bad policy is a bad policy.

    As to your first point, you have to follow arguments through.

    Would you object to the $1 trillion number as too broad a definition of tax expenditures? You are applying no practical definition. I’d love a practical as opposed to conceptual discussion.

    Let me know when you want to have one.

  26. comment number 26 by: Brooks

    Steve,

    To follow up on my last paragraph, the point is that government is already spending that much more (or at least much closer to that much more than people realize if they don’t count any tax credits or deductions as tax expenditures). Government is already that big when government decides to direct society’s resources to particular economic behavior such as purchasing particular products, and does so via cash incentives (and offering to let you keep $100 that you’d otherwise have to send to the Treasury if you buy Product X is the same incentive as sending you a voucher to buy Product X or sending you a $100 cash reward for buying Product X), and those cash incentives & rewards for buying those products mean that tax rates have to be higher than otherwise to achieve a given deficit level.

  27. comment number 27 by: Brooks

    Steve,

    Re: I would tell the conservative that a bad policy is a bad policy.

    That’s not a non-answer response. I’ll ask again, what would you say to a conservative who defends that narrow tax credit on the basis that eliminating constitutes a “tax increase” and “bigger government”?

    Would you say “Well, yes, it does mean bigger government and higher taxation, but it’s still good to eliminate it because of [put your reason here]”

    OR

    Would you tell him that he’s wrong to view eliminating that narrowly utilized tax credit as increasing the size and role of government (because the opposite is true — eliminating it actually makes government “smaller”), and wrong to simply view eliminating it as a “tax increase” as if it were in the same family as a tax rate increase in terms of incentives, rewards, and economic effects?

    You know what I was asking, so maybe this time you’ll make a genuine effort to address it.

  28. comment number 28 by: SteveinCH

    Brooks,

    More purely conceptual stuff. I’d say to the conservative, yes it’s a tax increase but it’s appropriate because it’s a bad policy.

    But it actually doesn’t matter. Bad policy is bad policy.

    I’m still waiting for your response to any of the practical questions. I guess you’re not ready for the practical discussion yet.

  29. comment number 29 by: Brooks

    Steve,

    Conceptual matters, because, as I explained upthread, there’s a reason we view cutting spending differently than we view raising tax rates, and there’s a reason conservatives generally prefer the former as the primary means of reducing deficits.

    And I’m trying to work from what may be a point of agreement by focusing for the moment on your answer that you’d favor eliminating that narrow tax credit even if we weren’t also cutting tax rates (to produce revenue-neutrality).

    But you’re still not addressing what you know I’m asking you about.

    Suppose a conservative says to you “No way I’m going to support eliminating that tax credit because that will mean higher taxes and bigger government, and as a conservative I want lower taxes and smaller government.”

    You still have not explained how you would address that perspective. (And obviously it is technically a tax increase in the technical sense of more tax revenue being paid, so I don’t mean simply acknowledging that technical fact.) Would you agree or disagree with him that eliminating that tax credit means “bigger government”? Would you point out to him that it’s applies and oranges to lump together (implicitly) elimination of that tax credit with a tax rate increase, and explain to him that that narrow tax credit is actually part of “bigger government” and eliminating it actually means “smaller government”, because it means less government direction of resources via subsidies, and less burden on other taxpayers generally (because eliminating it reduces deficits rather than leaving taxpayers with greater debt just so purchasers of Product X can have more money in their pockets)?

    So I ask you a third time to please answer the question in a direct and substantive way. You know what I’m asking you. Stop pretending you don’t. No more empty answers, with just a technical observation plus saying “it’s bad policy” without any rationale, ok?

  30. comment number 30 by: Brooks

    Steve,

    I’ll be busy until at least tonight, so if you have a moment in the meantime I hope you’ll (1) answer that question in a direct, substantive way, and (2) check out at least…

    The first Feldstein Op-Ed I linked to:
    http://www.nber.org/feldstein/wsj07202010.html

    And the first NRO column, which addresses your fixation with taxation as a % of GDP. http://www.nationalreview.com/agenda/253153/yes-virginia-there-such-thing-tax-expenditure-josh-barro

    And I’ll just quote from the second Feldstein piece:
    Tax credits for buying solar panels or hybrid cars are just like government spending to subsidize those purchases. Similarly, the exclusion from employees’ taxable incomes of employer payments for health insurance is no different from subsidizing the purchase of those insurance policies. The deduction for interest on residential mortgages, probably the best-known tax expenditure, amounts to a giant subsidy for homeownership.

    At their worst, such tax expenditures create incentives for wasteful borrowing and spending; they have been factors in the mortgage crisis and the rising cost of health care.

  31. comment number 31 by: SteveinCH

    Brooks,

    Let me try to engage politely despite your refusal to address any of the questions I have posed to you.

    From my perspective, the size of government relates to the resources that government takes from society. Reducing tax expenditures increases the resources that government takes from the rest of society. As I have explained to you before (and you continually ignore), failing to take is not the same thing as giving. A tax expenditure is a failure to take, not a gift. It’s only a gift relative to a counterfactual tax code where the expenditure was eliminated and everything else stayed the same. Such a tax code never existed. Once we venture into the world of counterfactuals, the term tax expenditure becomes meaningless because I can imagine any of a host of counterfactuals.

    Thus, eliminating tax expenditures means bigger government in the sense of government taking more and smaller government in the sense of less government intrusion. What maybe despite thousands (ok not yet) of posts I have have to communicate to you is I view smaller government as positive in both senses of the word whereas you are focused on only one of the two. Thus, the nature of the tax expenditure (more on the typology below) is far more important in judging the policy than the name.

    I would make one exception to that argument which is the “refundable” tax credit. That is simply a payment because it has nothing to do with tax liability. One doesn’t need to imagine a counterfactual tax code because the money is actually paid out rather than not taken.

    I know you don’t agree with that distinction and I know you think it’s illogical. I would thank you for not going through another long conceptual answer to make the point unless you are doing so for the purpose of making a point to someone other than me.

    As to the Feldstein op-ed, I both agree and disagree. It’s actually a perfect example of why I think the tax expenditure concept so dangerous. Let’s take the four policies that Feldstein cites, all as examples of tax expenditures. Credits for solar panels, credits for hybrid cars, the health insurance deduction, and the MI deduction.

    Credits for solar panels and hybrid cars are both examples of behavioral based payments where the government believes that positive externalities offset the cost of the foregone tax revenue (or payment). In my view, these exemptions should be eliminated on principle…that is, the government has no business subsidizing the purchase of certain items based on externalities, particularly externalities that are global rather than domestic in nature. I would point out that neither fits your stylized example above but beside the point.

    Now let’s move over to the health insurance deductibility. It is substantially more complex. First off, it’s a business credit rather than a personal credit. Second, the individual (citizen) makes no purchase decision here. Third, were the deduction eliminated, the net effect would be smaller than the calculated size of the tax expenditure. Fourth, it becomes very similar to a discussion on tax rates. For example, would you consider the capital gains tax rate being different than the ordinary income tax rate to be a tax expenditure. After all, it is in effect subsidizing the delivery of compensation in deferred forms (options and restricted stock) versus other forms (cash compensation). With all of that said, I would eliminate it because of its overall impact on health care costs (increased inflationary pressure) but not because of any impact one way or the other on the “size of government”.

    Last the MI deduction. First off Feldstein is wrong that the MI deduction is a subsidy for ownership, rather it is a subsidy for debt. Renters benefit from the MI deduction to the degree that either the owner of the property is a business (in which case interest expense is deductible anyway) or the owner uses the MI deduction for that property (as in a duplex where the owner inhabits the property).

    Now, on the substance, the MI deduction ( or the business tax interest deduction) is almost impossible to avoid in modern society. Eliminating it would be far closer to a randomly distributed rate increase than anything else.

    So Feldstein has a mix of things that are behavior based and not, apply to individuals and not, address externalities and not, and so forth and he chooses to lump all of these under the name “tax expenditure”. To me, considering all of these policies as if they were the same is simply incorrect conceptually and leads to the practice problems I describe.

    I read the Barro piece as well and I think it suffers from the same issues as the Feldstein piece.

    As a consequence, the term tax expenditures is, to me, only useful insofar as it considers choice, refundable vs not, incidence (consumer vs business) and breadth in the definition. By the time the 16 boxes are filled out (2 to the 4th), the typology loses its impact and becomes overly complex. That said, it’s a complex discussion which is why I think the debate should focus on policies rather than trying to clarify subtypes within.

  32. comment number 32 by: Brooks

    Steve,

    You are mixed up on a number of levels on this issue. Right now I can’t address all the errors you just made b/c this comment is going to be long enough as is, but I’ll try to get you to focus on the basic question in a substantive way (If you do, it will be the first time).

    Re: the size of government relates to the resources that government takes from society. Reducing tax expenditures increases the resources that government takes from the rest of society. ..[F]ailing to take is not the same thing as giving. A tax expenditure is a failure to take, not a gift…Thus, eliminating tax expenditures means bigger government in the sense of government taking more and smaller government in the sense of less government intrusion.

    Donald Marron put it this way:
    Politicians act as if those provisions are tax cuts. That seems plausible. Businesses and families send less money to the IRS because of them.

    But think about it. These tax breaks don’t let you keep your money. They pay you for doing what government wants, whether that’s taking out a mortgage, giving to charity, or investing in R&D. What you pay the IRS equals the taxes you owe minus the payments for which you’ve qualified. Those payments are no different from spending; they just happen to be netted against your tax bill. http://dmarron.com/2011/05/24/cut-spending-by-raising-taxes/

    And I’d add this: The amount we add each year to the burden on taxpayers over time equals current tax revenue plus the deficit, since that deficit is an addition to taxpayers’ collective liability. Anything that reduces the amount of money the Treasury ends up with – spending, tax credits/deductions, or tax rate cuts — increases the deficit. So even a tax rate cut doesn’t really reduce the total burden on taxpayers over time (unless an indirect effect is “starving the beast” at least dollar for dollar, or if one believes tax cuts pay for themselves dynamically), but merely shifts it to future taxpayers. But a tax rate cut now (or for that matter, a lack of a tax rate increase) at least would be apples-to-apples with increasing the future tax burden, so one could argue that it’s something of a wash (leaving aside, just arguendo, interest expense and the risks of higher federal debt). By contrast, with tax credits and deductions for purchasing Products X, Y, Z, etc., — as with vouchers or “reward” checks sent by the Treasury to those who purchase those products (i.e., subsidies in “spending” form) — this extra burden (the addition to the deficit due to forgone revenue) is placed on the backs of future taxpayers so that purchasers of those products chosen by the politicians can end up with more money than they’d have without those tax credits and deductions. In other words, future taxpayers are being forced to sacrifice to subsidize current purchases of those products the politicians have chosen to subsidize (and this applies whether the subsidy is a tax deduction/credit or explicit spending).

    Conversely, eliminating such a tax credit (or voucher or “reward” check) for purchasing those products means that people purchasing those products would lose the subsidy and thus have to pay more for those products (compared to paying less, in effect, net of the subsidy), and the burden on future taxpayers would be reduced because of the lower deficit. (This is usually where you throw in the likelihood that the extra funds in the Treasury would go to extra spending, but as I’ve explained to you many times, the same could be said of a reduction in a given type of spending – the Treasury ends up with more money, and it could use it to spend more on something else just as it could if it had ended up with more money as a result of higher revenue. You don’t seem to get that either. The set of potential indirect effects is the same, but we know that the direct effect of either is a lower deficit.)

    Anyway, I will try again to get you to progress from the technical observation through which you imply something substantive (more cash going from Taxpayers to the Treasury) to a discussion of what actually is substantive. I’ll continue using my hypothetical of that narrowly utilized tax credit for purchasing Product X. I asked you:
    Suppose a conservative says to you “No way I’m going to support eliminating that tax credit because that will mean higher taxes and bigger government, and as a conservative I want lower taxes and smaller government.”

    It seems from your comment that you would concur with that person that eliminating that tax credit should indeed be thought of as higher taxes, not just in a technical sense but also in a substantive sense – closer in essence (incentives and all effects on all parties, markets, etc.) to a tax rate increase than to a spending cut, correct? (It’s like pulling teeth to get a straight answer, but hopefully you won’t dodge this question)

    And you’d also tell him that, although eliminating that tax credit means smaller government in the sense of intrusiveness, you agree with him that eliminating the tax credit means bigger government in terms of the amount of “resources that government takes from society.”

    Now then, suppose the same exact subsidy for purchasing product X — the same in every substantive way — were provided via a voucher or a “reward” check sent by the government (in either case the dollar amount not to exceed the purchaser’s tax liability). And suppose a conservative objected to eliminating that program (which undoubtedly you’d call “spending”, as would everyone else) on the same basis as in the case of the same subsidy in tax credit form, saying the same thing:
    “No way I’m going to support eliminating that voucher program (or check reward program) because that will mean higher taxes and bigger government, and as a conservative I want lower taxes and smaller government.”

    Well, obviously you could point out the technical error of fact, since there would not be more tax dollars going to the Treasury. But there is no substantive difference between (A) The Treasury sending a check or voucher of $100 to everyone (with at least $100 in tax liability) who purchases Product X vs. (B) a $100 tax credit (non-refundable) for purchasing Product X. In either A or B, the incentive is the same, the net effect on beneficiaries is the same, as is the net effect on the Treasury, the impact on markets and the allocation of society’s resources is the same, etc – in every substantive way, they are equivalent. If you disagree, I ask you for the millionth time to tell me in what substantive way they are different. And if you yet again merely repeat the observation re: non-substantive difference in cash flow without explaining what the substantive difference is, or just stating that one form means government taking more resources than the other form without saying how (given that all the incentives and effects are the same), I’ll have to consider it even more likely that you are not engaging in good faith.

    If you can’t provide some substantive difference (which you can’t, b/c there is none), then admit that there is no substantive difference – that, substantively speaking, it is the same policy whether in the form of a tax credit or in the form of a voucher or “reward” check.

    Yet if the subsidy were provided via voucher or “reward” check from the Treasury, and that conservative objected to eliminating the subsidy on the basis that eliminating it meant “bigger government” and that eliminating that subsidy would be closer (substantively speaking) to raising tax rates than to cutting spending, your reply to him would be very different, right? You would say there is simply no way that eliminating that subsidy (in the explicit spending form) could be seen as “bigger government”, nor is there any way eliminating that subsidy more closely resembles a tax rate increase than it resembles a spending cut – and I mean substantively speaking, not just technically as a matter of one type of cash flow.

    Basically, your reply to that person (or at least what you’d be thinking) would be “What in the world are you talking about?? Obviously you are quite confused and your objection is nonsensical. Eliminating that subsidy clearly means smaller government and lower spending”. Yet, in the tax credit scenario you give a speech about all the ways in which that person’s objection is sensible. (You say you would want it eliminated because it’s “bad policy”, but you’ve never said clearly why you think it’s “bad”, unless it’s the government intrusiveness you mentioned.)

    So: It’s the same policy in every substantive way regardless of which form it takes, yet your response to that person’s objection would presumably be quite different in the case of the voucher or “reward” check than it was above re: the tax credit. How do you explain how you can have such a fundamentally different view of two hypothetical policies that would be substantively the same in every way?

    I’ll just touch on a couple of other items from your comment:

    RE: “the term tax expenditure becomes meaningless because I can imagine any of a host of counterfactuals.”

    Yet again you show that you are still fixated on how other people are using a particular term (“tax expenditures”) and the matter of defining that term, rather than directing your replies to me at the points and questions I’ve presented to you. As I’ve explained previously, the points and questions I’ve presented could be presented without ever using that term, and I’ve been avoiding the term lately to try (in vain so far) to get you to stop focusing on others’ usage of the term and your objection to it (an objection that is much less significant than you think, but I’m not getting into that for now; it’s tough enough trying to get somewhere with you on the main point). Lose that fixation. I’m avoiding using that term because you are either extremely distracted by it or you are using it to reply while dodging my actual questions and arguments. For a guy who claims not to consider “typology” important, you sure seem obsessed with it and persistent in forcing it into a discussion.

    Re: <eliminating tax expenditures means bigger government in the sense of government taking more and smaller government in the sense of less government intrusion. What maybe despite thousands (ok not yet) of posts I have have to communicate to you is I view smaller government as positive in both senses of the word whereas you are focused on only one of the two.

    No, you see a non-substantive difference in cash flows (between a subsidy in tax credit form vs. the same subsidy in explicit spending form) as somehow substantive, and I don’t. It’s like you’re saying you see a fundamental difference in ideology and economics between the store telling you the price for Product X has been reduced from $10 to $9 vs. the store giving you a $1 coupon or instant rebate on (if you had to pay the $10 and get the $1 as separate transactions rather than just paying $9). There’s no substantive difference, but you still think you see some substantive difference between the same two scenarios in the context of tax credits vs. explicit spending subsidies.

    Re: I would make one exception to that argument which is the “refundable” tax credit.

    Let’s leave refundable tax credits out of this. I’m referring to non-refundable tax credits. Last thing you need is another distraction.

    Lastly, your paragraph re: health insurance is one heck of a mix of irrelevancies, extraneous details, false comparisons, non sequiturs and general confusion. I won’t take time right now to explain all of those errors.

  33. comment number 33 by: Brooks

    Yikes, what a long comment. That’s what happens when I keep trying to get someone to understand something and to actually address an actual question or argument. It takes a lot of explanation and illustration.

    Anyway, just so it’s clear to anyone who manages to read my comment above, I meant to italicize the following so it would show as a quote of Steve:

    Re: eliminating tax expenditures means bigger government in the sense of government taking more and smaller government in the sense of less government intrusion. What maybe despite thousands (ok not yet) of posts I have have to communicate to you is I view smaller government as positive in both senses of the word whereas you are focused on only one of the two.

  34. comment number 34 by: SteveinCH

    Brooks,

    You brought the thoughts of other people into the discussion. I commented on them and then you told me that I could only respond to the term as you choose to define it when you haven’t even defined it beyond your conceptual examples.

    What an effin waste of time.

    You are not a debater in good faith. I tried one last time and got back another string of self-superior BS.

    Good bye.

  35. comment number 35 by: Brooks

    Steve,

    Nice dodge. And by “nice” I mean “pathetic”.

    Just because I pointed you to arguments as expressed by others so that you could hopefully come to understand this conceptually doesn’t mean I want to shift the discussion to one of the semantics they used.

    Nor did my response to you deal only with my rejection of such a discussion of semantics. Indeed, that was only a tiny part of my reply.

    So what we have here is essentially your once again dodging the most basic question related to your fundamental confusion on this issue: I ask you to either tell me what the substantive difference is between A and B or to admit there is no substantive difference, and you won’t do either, because the former is impossible and because doing the latter apparently would require more emotional maturity and good faith than you are willing to bring to the table. You are embarrassed by this issue, because you want to maintain a position you have insisted upon, yet you find yourself utterly unable to support or defend it when faced with the most basic question that goes to the heart of the matter and exposes your position as nonsensical. I can understand why that would be embarrassing. I’d like to think, though, that if I were in your position I’d still engage in good faith, even if that meant I might end up admitting I had been wrong all along. But it’s hardly shocking that someone in the political blogosphere lacks that level of maturity and integrity.

    Anyway, if you want to shock me by engaging in good faith, go ahead and either tell me what the substantive difference is, or admit that there is none.

  36. comment number 36 by: AMTbuff

    you see a non-substantive difference in cash flows (between a subsidy in tax credit form vs. the same subsidy in explicit spending form) as somehow substantive

    I explained this already, Brooks. Read it again. We don’t disagree with your mathematical equivalence. We disagree with the qualitative inferences (judgments) you make as you move beyond the mere mathematical equivalence.

    Is a subsidy delivered through the tax code equivalent in economic effect to spending the same amount of dollars on something entirely different? No. It might be better for the economy or it might be worse. Will the government be more intrusive with the subsidy or with the spending? It could go either way.

    Is a subsidy for purchase of product X delivered through the tax code equivalent in economic effect to spending the same amount of dollars as a direct subsidy for purchases of product X? Again, no. It might be better for the economy or it might be worse, depending on numerous details.

    Is changing the subsidy rules disruptive and does it cause temporary harm to the economy. Probably yes. Does removing subsidies help the economy in the long run? Almost certainly yes. Does the inclusion of equitable transition rules negate the economic gain? Possibly.

    Tax expenditure terminology implies that increasing taxes $100B per year by removing the mortgage interest deduction will have the same effect on GDP as cutting $100B of discretionary federal spending. This simple equivalence is simply false.

    However what is true is (apologies to Obama) that when revenue needs to be raised, removing inequitable tax breaks harms the GDP less than equitably allocated rate increases. If the users of the term tax expenditure want to change that term to revenue opportunity, I will agree. Because that’s an accurate description.

    Brooks, you should carefully read and consider my posts 74 and 75 on the Five thread. Really read them, don’t skim. And read the JCT paper too.

    Brooks, I urge you to spend 200% as much time reading as writing, rather than 20%. Then, as you promised to do, write me a concise response of what part of my argument you don’t follow or don’t agree with. I will respond to that.

  37. comment number 37 by: Brooks

    Steve,

    Oh, and re: you told me that I could only respond to the term as you choose to define it

    Huh?? Where did I insist that you respond to some term, let alone respond to some term as I choose to define it?

  38. comment number 38 by: SteveinCH

    “Yet again you show that you are still fixated on how other people are using a particular term (“tax expenditures”) and the matter of defining that term, rather than directing your replies to me at the points and questions I’ve presented to you. ”

    That’s all I have to say Brooks.

  39. comment number 39 by: Brooks

    AMT,

    You seem to be referring to things other than what I wrote. And frankly, Steve doesn’t need your help in being confused, so perhaps you shouldn’t speak for him, much less respond on his behalf to my question to him, although I assume he appreciates anyone seemingly supporting his view (which I don’t think you actually do, unless you’re going to completely backtrack on what you said re: narrowly utilized tax credits more closely resembling spending than tax rate cuts).

    I was asking Steve a simple question: what substantive difference he sees between two different forms of what I’m saying is substantively the same policy. He has no answer, but he also won’t admit the substantive equivalence, and he will (explicitly or implicitly) continue insist that there is indeed a substantive difference, indeed fundamental differences of ideology and economics, simply by virtue of which form the subsidy takes. And that goes to the heart of his confusion.

    Are you saying you now dispute the equivalence in that hypothetical example? If so, you can feel free to answer for Steve and tell me what the substantive difference is, given that all incentives and effects on everyone and everything are the same regardless of form (if not, tell me what is different).

  40. comment number 40 by: Brooks

    Steve,

    I guess you need to re-read my prior comment to you. I’ve been saying repeatedly that the point I’m making has nothing to do with semantics and that I wanted you to break your fixation with the semantics (or “typology”) related to this issue. I refer you to some columns that I thought could help you understand something conceptual that you can’t seem to grasp (if you really are still sincerely confused), and you waste our time on the “typology”. Moreover, as I said in my prior comment, I only addressed that element in a tiny part of my earlier, long comment to you, yet you used it to first fabricate and then use an excuse for not answering the basic question at the core of my comment. It was a lame, pathetic, obvious dodge.

  41. comment number 41 by: SteveinCH

    brooks,

    the substantive difference is they produce different policy/economic outcomes because it is simply put impossible for most (in dollar terms) tax expenditures to be recreated vis direct spending without massive deadweight loss.

    if that’s not clear enough for you, I can’t help you.

  42. comment number 42 by: SteveinCH

    Brooks, once you get off of theory and on to practice. The semantics matter.

    That’s the part you refuse to even try to understand.

    Please take note, it is possible to disagree with someone without insulting them. You should try it sometime.

  43. comment number 43 by: Brooks

    AMT,
    Oh, and I had already replied to you over on that other thread (about a half hour before your comment).

  44. comment number 44 by: Brooks

    Steve,

    Re: the substantive difference is they produce different policy/economic outcomes because it is simply put impossible for most (in dollar terms) tax expenditures to be recreated vis direct spending without massive deadweight loss.

    Who is talking about recreating a tax credit as a direct subsidy? Not me. What I am asking you is what substantive difference you see between my A and B. You still haven’t explained, and I assume you won’t, because you can’t, because there is no substantive difference. Again, since you won’t admit this, tell me how A is substantively different than B. The incentive is the same and all effects are the same, are they not? (leaving aside any differences in administrative difficulty or cost, and assuming no timing differences, b/c such factors are extraneous to the main point)

    Again:

    (A) The Treasury sending a check or voucher of $100
    to everyone (with at least $100 in tax liability) who purchases Product X. [You could make this "$100 or tax liability, whichever is less". Same idea.]

    (B) a $100 tax credit (non-refundable) for purchasing Product X.

    Go ahead Steve. What’s the substantive difference between A and B. Spell it out for me.

  45. comment number 45 by: SteveinCH

    A and B are conceptual. Recreate them using actual policies and then I’ll be happy to discuss them.

  46. comment number 46 by: SteveinCH

    Let me say that better Brooks. With all the stipulations you’ve describe A and B are the same. I’ve said that before. Now what?

  47. comment number 47 by: Brooks

    Steve,

    There is absolutely no reason why you can’t either say there is no substantive difference OR tell me what you think are — or even could possibly be — substantive differences. You’re still dodging.

    And re: my insulting you, if I thought you were engaging in good faith but still just completely confused after really making some effort to think about what I’ve said in all my efforts to get you to understand, I wouldn’t be insulting. But I find it hard to believe you really can’t get it, and also that you really think you’ve been responsive to my actual questions and arguments. You reply time after time but I think not in good faith, and you are therefore wasting my time and making it harder for others to understand this important issue, apparently all to try to protect your ego. That is at least arguably worthy of my calling you out on it.

  48. comment number 48 by: Brooks

    My comment crossed with your 7:38. Finally you give an answer. Amazing. Why did it take you so long? Why was it like pulling teeth? Why dodge the question and waste our time?

    Let me get back to this later tonight.

  49. comment number 49 by: SteveinCH

    Because Brooks, I don’t think the conceptual discussion matters at all. This is a serious and practical conversation. Reducing it to a conceptual example and assuming away all issues (e.g., administrative costs and targeting) makes it so conceptual as to be silly.

    Dismissing all practical concerns as “beside the point” makes you seem arrogant. I’ve never actually debated the purely conceptual point. I simply find it irrelevant to the discussion we need to have as a nation.

    Maybe now we can get on to that part.

    Perhaps you should think about assuming that everyone is less well informed and less intelligent than you are and try to understand what they are trying to talk about as opposed to simply continuing to focus solely on what you want to talk about.

    You’ve not answered a single question than anyone else has had in hundreds of posts other than to restate you highly conceptual point. And then you accuse others of arguing in bad faith…

    Wow. Simply wow.

  50. comment number 50 by: Brooks

    Steve,

    Thank you for confirming that you were not engaging in good faith — that you knew that you were replying with non-answer replies over and over and over again because you just didn’t want to answer the question. That’s common in the blogosphere. Someone asks a question and the other person pretends to be replying or refuses to answer (without any sensible reason, particularly when he knows his answer and providing it would be very quick) because he’s afraid that if he engages in good faith by actually answering, he may end up proven wrong or at least unable to support/defend his position, and avoiding such a situation is much more important to him than engaging in good faith.

    As for the stuff I’ve said is “beside the point” or “extraneous”, it’s hard (and can be time consuming) to explain why some aspect of an issue or topic (etc.) is extraneous to some other question pertaining to the same general topic. It’s often the kind of abstract thinking that either one grasps or may not be capable of or willing to actually think about enough to grasp. Not sure how to explain, for example, why the fact that it could be more difficult to administer a subsidy in one form vs. the other is extraneous to the question of whether the subsidy is essentially the same in either form in terms of it’s nature — incentives, effects on all parties (respectively), effects on markets, etc. (all the stuff I’ve listed many times previously). Ditto for why the fact that there would likely be timing differences in cash flows shouldn’t obstruct us from addressing that central question by disregarding potential timing differences. Ditto for the fact that there dynamic effects occur if a subsidy is removed (e.g., “were the deduction eliminated, the net effect would be smaller than the calculated size of the tax expenditure.”), not to mention that if the subsidies are essentially the same in either form, the dynamic effects would be the same if the subsidy had been in spending form and were eliminated (the same other than any differences in behavior due to psychology and misunderstanding — i.e., irrationality. And yes, potential irrationality is extraneous to the main point here, whether you see that or not.)

    Now then, back to the actual stuff.

    So you finally say that there is no substantive difference.

    So are you now saying you agree with AMT (and me) that a narrowly targeted (non-refundable) tax credit for purchasing Product X more closely resembles spending than it does a reduction in tax rates?

    Or are you saying that the above is only the case if there are no big differences in the ease and cost of administration between the two forms, but if there is such a difference in administrative efficiency, you might say the opposite — that the tax credit is essentially (in terms of incentives and all effects) more like a tax rate cut than like spending?

    If your answer to the first question is “yes”, then how is that consistent with all you’ve been insisting on — your insistence that the answer to this question depends simply on how much is being paid in taxes, that it’s as simple as the more being paid in taxes, the bigger government is in the sense of taking resources from society*. You now seem to be contradicting yourself, saying that even if eliminating a tax credit means more gets paid in taxes, it could be equivalent to a spending cut, which you surely wouldn’t say makes government bigger in any sense. So how do you reconcile this apparent self-contradiction? Or are you now rejecting what you’ve said all along?

    Oh, and if your responding means you’ll go back to your song-and-dance routine, pretending to be making a good-faith effort to respond to my questions without doing so, please spare me. Don’t deliberately waste my time again with such games please.

    * As a side note, you did acknowledged that eliminating a non-refundable tax credit could mean smaller government in the sense of less intrusiveness, a distinction that is at best unclear, but never mind.

  51. comment number 51 by: SteveinCH

    As I said Brooks, let me know when you want to have a non conceptual discussion. I guess we are not there yet.

  52. comment number 52 by: Brooks

    Steve,

    Once again, you are unwilling to engage in good faith. Oh well, at least you had a brief moment and actually built up the nerve to answer a question. Too bad you got scared off just as quickly when you saw yet again that good-faith engagement might lead you to a point at which you couldn’t defend your position.

    There really are worse things in life than being unable to defend one’s position on a blog, and worse than admitting one has been wrong about something. I wish you wouldn’t let ego/insecurity trump your willingness to engage in good faith.

    There also are worse things in life than being led around by someone who is pretending to be engaging in good faith but is actually wasting one’s time, but I’d really rather you hadn’t done that. Better to take the approach you’re taking now of pretending you have a reason to just stop engagement altogether re: my questions and arguments.. It’s still not an honest thing for you to do, but at least you’re not continuing to play time-wasting games.

  53. comment number 53 by: SteveinCH

    ROFL. Engaging is a two way street sir. If you want cross examination, head for law school.

  54. comment number 54 by: Brooks

    Steve,

    In a way, I wish you really had gotten a good laugh. Apparently this topic — or more precisely, your apparent embarrassment and discomfort from realizing on some level that you probably aren’t getting it b/c you can’t support/defend your assertions — causes a lot of stress for you. A good laugh, had it occurred, would have been good for you.

    Re: your two-way street, sorry Charlie, but if you show again and again that you are unwilling to engage in good faith by responding directly and substantively to initial questions presented to you, and then you ask different questions to try to take the discussion in a different direction, no, you can’t claim lack of a two-way street if that other party to whom you’ve been substantively unresponsive (while also wasting his time with your bad-faith pretense of responding) wants to get some actual answers to his logical line of questions instead of just dropping them and shifting to some separate aspect of the issue. (Which isn’t to say your claim is valid that I haven’t answered any of your questions, but that’s beside my point — or do you not understand that either?)

  55. comment number 55 by: SteveinCH

    I did Brooks. You are laughable at this point. It would be helpful to get over yourself at some point.

    I hope you enjoy law school

  56. comment number 56 by: Brooks

    Steve,

    Yet another factually- and logically-challenged comment from you. First, you didn’t respond with good-faith responses to my questions and arguments. Second, if you had, there would not have even been the opportunity for me to attempt the supposed “cross-examination” you allege.

    You really should get a hold of yourself. Months ago I would not have thought you would have been so full of insecurity and lacking in integrity that you’d descend to such behavior. It’s obviously quite common in the political blogosphere, but I would have thought you less likely than most blog commenters.

    Anyway, it’s not the worst crime in the world, and maybe you find the thought of where good-faith engagement might lead unbearably embarrassing at this point, so I guess I’ll just have to leave it this: if you need to continue with your pretense to get by, I guess I have to just accept that you’re never going to engage in good faith on this topic, and I should stop wasting my time with you on it (fool me once, shame on you; fool me twice [or over and over again], shame on me).

  57. comment number 57 by: ST Dog

    Steve,
    I don’t think Brooks can get past academic, conceptual arguments.
    Sort of like the business teacher that cannot run a business, the professor in elementary education that cannot teach 2nd graders, or the engineering professor that that cannot design anything.

    Brooks,
    How many people do you know that look forward to their tax refund every year?
    I suspect you are like me and adjust your withholdings so that you get little or nothing back, maybe even pay a bit right?

    Well, many see a difference in havening less held out of there check every week versus getting a lump sum check February-April

    The same logic (or lack thereof) applies to the “discussion” you wish to have. You are talking about conceptual ideas that fall apart when they meet the real world (real people).

    The psychological effects of a tax deduction/credit are different than the effects of a direct cash payment. Those effects are important, especially to the politicians that have to implement the policies.

    I’m all for elemination all deductions and credits, and going to a simple tax system, be it a flat rate, progressive with several brackets, or even the FairTax.
    Doesn’t matter what you call them, anything that reduces the taxes of some, but not all is bigger government.

  58. comment number 58 by: Brooks

    ST Dog,

    Perhaps I’d be inclined to attach some weight to whatever it is you are trying to say if you had provided at least a hint that you have some clue as to what point I’ve been making (or for that matter, if you had shown an ability to present at least a reasonably clear, reasonably coherent argument, or even to make it clear what your point is, let alone the reasoning behind it).

    Apparently you’re a guy who just has no idea what he has read, nor even a clue that he has no clue, yet who wants to be snarky.