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A First Crack in the GOP’s “No New Taxes” Armor?

June 15th, 2011 . by economistmom


[UPDATE and CORRECTION (strikeouts shown and inserts noted with italics), 2:15 pm Thursday.  Regarding the vote tally, I got it backwards!  The 40-59 vote was 40 votes in favor, 59 opposed.  More on what seems like the irony that most Democrats actually voted against this idea they supposedly support (of raising revenue by reducing tax expenditures or "loopholes"), later.]

Tuesday’s vote in the Senate on Tom Coburn’s proposal to end the ethanol tax credit was significant even though it failed to get the filibuster-proof 60 votes.  It just barely fell short, receiving 59 votes. And as the Washington Post’s Lori Montgomery explains, what’s significant is the fact that it got 59 votes means that at least some Republicans supported the revenue-gaining measure:

The measure, offered by Sen. Tom Coburn (R-Okla.), fell short of the 60 votes needed to overcome a filibuster threat. But it had the support of 34 of 47 Republicans, most of whom have signed an anti-tax pledge that specifically prohibits raising taxes by any means but economic growth.

Coburn has argued forcefully that Republicans must abandon that pledge if they are serious about tackling the spiraling national debt. Though the Senate turned back his measure, he said the vote nonetheless marks the beginning of the end of GOP tolerance for wasteful giveaways through the tax code.

“You’ve got 34 Republicans that say they’re willing to end this, regardless of what Grover says,” Coburn said, referring to pledge creator Grover G. Norquist, the founder of Americans for Tax Reform. “That’s 34 Republicans that say this is more important than a signed pledge to ATR.”

Lori suggests that cutting the ethanol tax credit–along with other tax expenditures, perhaps–might actually become part of the bipartisan deficit-reduction deal that would come out of the “Biden talks.”  But some key Republican leaders still seem to be “hypnotized and mesmerized” by the Norquist mindset (emphasis added):

It was unclear Tuesday whether the ethanol vote has any direct implications for the Biden talks. Though he was among the 34 Republicans who voted to advance the measure, Senate Minority Leader Mitch McConnell (R-Ky.) told reporters that ending tax breaks is “the kind of thing you would typically do in a broad tax reform bill,” not in debt-reduction talks.

For his part, Norquist claimed victory, saying he had prevented Coburn from tricking his colleagues into voting for a tax increase. At a Capitol Hill meeting Tuesday morning with more than 100 GOP staffers, Norquist said he authorized senators to advance the Coburn measure so long as they also supported a bill by Sen. Jim DeMint (R-S.C.) to cut the estate tax.

This strategy, Norquist said, “robbed” Coburn of the opportunity to persuade his Senate colleagues to vote for higher taxes.

“We won, he lost; he can try again, but he’s not going to get his tax increase,” Norquist said. “Because the House won’t let him have his tax increase, even if he thinks he can get it through the Senate.”

McConnell actually has it backwards, by the way.  Ending tax breaks in a way that raises revenue is not typically what you’d do in a pure “tax reform” bill with a primary goal of simply improving the efficiency and fairness of the tax system; you’d typically look at reforming the tax system to collect the same amount of revenue more efficiently and fairly.  It’s precisely because we are in fact trying to reduce the deficit by cutting spending and/or raising revenue that policymakers like Coburn are proposing to cut tax expenditures and actually raise revenue.   It’s precisely what makes cutting tax expenditures such the perfect policy for deficit reduction–because it actually reduces spending and raises revenue at the same time.

[***UPDATE, 11 pm Thursday:  This evening the Senate passed the proposal to end the ethanol tax credit, 73-27, apparently having fixed any "procedural" concerns of the Democrats.  Here's the AP story.  I do think this is major progress in terms of Republicans being open to deficit-reducing revenue increases if they come from base-broadening rather than from increases in tax rates.]

44 Responses to “A First Crack in the GOP’s “No New Taxes” Armor?”

  1. comment number 1 by: Vivian Darkbloom

    Let me get this straight: 34 of 47 Republicans voted against fillibuster on a bill to end the ethanol subsidy. If 59 Senators voted for ending fillibuster, simple math would therefore suggest, I think, that only 25 of 53 Democrats voted for the same measure. So, why isn’t this column beating up on them?

    If we look at the specific characteristics of the ethanol tax subsidy (which I think we should) it’s pretty clear that it more closely resembles spending than taxing, particularly given the fairly narrow group that benefits from it (this is one of the criteria that was suggested by one of our regular commenters here, either Steve or AMT, and I think that’s right). Besides, it interferes too much in the economic market where government steps in to decide which industries or technologies should win. That’s an economic argument, not a political one, and on this point (applying economic criteria to decision-making) I think most Republicans have a better track record than Democrats.

    Apropos the Great Obfuscation over “tax expenditures”, I’ll make this final observation. “Progressives” seem very fond of complaining about the low “effective tax rate” paid by middle and higher-income Americans. At the same time, they are finding it particularly chic (as here) to argue that it also constitutes spending. That might be good politics, but it is bad accounting because it double counts. If you want to argue that tax expenditures constitute spending, then perhaps you need to re-think how you compute effective tax rates or drop the concept altogether. That’s why I said in a comment to the earlier post that the current system doesn’t allow any sensible discussion regarding the crucial question of who gets what.

  2. comment number 2 by: Vivian Darkbloom

    This was so puzzling to me I went to the roll call vote, which can be found here:

    Actually, the Coburn measure failed by a vote of 40 to 59, not the other way around. And, of those 40, only 5 were Democrats (the other one was Lieberman who caucuses with the Dems).

    Unless I’m missing something, this column needs a correction. It did not “just barely fall short receiving 59 votes”. And, that’s not what Montgomery wrote.

  3. comment number 3 by: SteveinCH

    Wow. This is seriously biased Diane.

    More than 60 percent of Republicans voted to pass the measure and less than 10 percent of Democrats did and you call it a potential crack in the GOP’s armor?

    Wow. Simply wow.

  4. comment number 4 by: C. Nelson

    Rather than a “crack in the GOP’s armor”, this first sign of some concession by the GOP to the income side of the debate is indication of Republicans’ sound negotiating strategy in this all-important issue. The GOP has been right to stand firm on the tax increase issue. In an absence of Republican resistance, Democrats would act like kids in a candy store with regard to new and increased taxation.

  5. comment number 5 by: R. Glantz

    @ C. Nelson: Please, no lectures on fiscal responsibility. The “kids in the candy store” were the past administration which put two wars and a massive drug subsidy program on the national credit card while slashing taxes on the wealthiest Americans. The Clinton administration handed off a balanced budget and a road map to eliminating the national deficit to the Bush administration, which promptly and fecklessly ran the US economy over a cliff.

  6. comment number 6 by: Steve Thompson

    Why do none of our “leaders” mention the issue of underfunded Medicare, Medicaid and Social Security programs is dealt with before it is too late for those of us that live on Main Street. As shown in this article, over $100 trillion in funding will be necessary over the coming decades to maintain these programs that most Americans rely on as they reach retirement and the future of all three is uncertain at best:

    The massive underfunding makes the $14.4 trillion debt look rather tiny by comparison.

  7. comment number 7 by: Lanche

    They had better remember their promise to have deep cuts, because if they do not they can be just as vulnerable as Democrats are at the voting booth.

  8. comment number 8 by: Angry Whiner

    I think this article is accurate. Regardless of numbers guys, the Republicans and Democrats know before hand the vote is going to be filibustered by the Republicans. That’s why is ALWAYS takes 60 votes to make a majority, because the Republicans set-it-up that way. Therefore, it is REALLY Pass or NOT Pass, i.e. 60 votes or it’s a no go. Therefore the Democrats & Republicans both posture “for their constituents” like their vote really meant something. The Republicans rule, and make the 60 vote rule, and that’s that!

  9. comment number 9 by: ZweiStein

    Coburn…a Republican trying to actually do something about our current condition…something that makes sense. The Senator from Oklahoma. Impressive!

  10. comment number 10 by: AMTbuff

    It’s precisely what makes cutting tax expenditures such the perfect policy for deficit reduction–because it actually reduces spending and raises revenue at the same time.

    IMHO you cannot count it as both without double counting. Yes, it’s similar to both (more similar to spending cut for this particular item) but when it comes to counting, put it in one bucket or the other only.

    VD is correct that if one asserts the identity tax expenditure = spending, one is also asserting that the federal government is spending a very large share of GDP. That’s an interesting academic argument.

    Advocates then assert implicitly that all spending is equivalent to all other spending. (I believe that some spending carries lower economic cost and lower social benefits, while other spending has higher economic cost and higher social benefits.) If we accept this assertion, then eliminating the mortgage interest deduction and spending the $100B on a new Moon landing program would have no net effect on the economy.

    In the final link in this chain of reasoning, advocates call for the federal government to explicitly spend the same very large share of GDP by taking more money from 100 million taxpayers, because the situation will be equivalent to the starting point. This conclusion sounds nonsensical to a lay person like Jon Stewart.

    I have long believed that there was a logical fallacy somewhere in this chain of argument. I now believe that the original identity is incorrect when considering mass market tax breaks. However I might be wrong, so I have asked Len Burman to explain it to me. I have never seen Len be incorrect on any question of economic analysis.

  11. comment number 11 by: economistmom

    Whoops — you are right, Vivian! I am making my correction now…. And adding a comment about the lack of support from the Dems–which I have read was mostly due to “procedural” concerns, but I don’t yet understand that point.

  12. comment number 12 by: Vivian Darkbloom


    In my not so humble opinion, eliminating a tax expenditure could economically only be both a “tax increase” and a “spending cut” if that expenditure is a hybrid (i.e., a combination of both), which they most often are. I won’t go about pretending to be able to determine accurately which part is which, but let’s take an example.

    Let’s assume that we eliminate the mortgage interest deduction and that increased federal revenue (without dynamic effects) by $100. Arguably, part of that $100 is a spending cut and part is a tax increase. However, in no way can you say that the effect is to reduce spending by $100 and to increase revenue by $100. That would truly be double counting. The sum of both need to equal $100.

  13. comment number 13 by: Vivian Darkbloom

    Let me amend my earlier comment. I wrote that the net effect would be “to increase revenue by $100″. I can see how that could be misleading, so let me clarify by saying “the net effect would be to reduce the deficit by $100″.

  14. comment number 14 by: Brooks


    First, as just a minor note, re: your view of Diane’s phrasing as double counting, when she says “reduces spending and raises revenue at the same time” it’s just that she’s mixing the conceptual with the technical: technically revenues are increasing, and conceptually (but not technically) what occurs is equivalent to a reduction in spending (or at least similar to that, or closer to that than to a tax rate increase). I happen to think it’s better just to make the second point, since, if one accepts the validity of that point, the revenue increase is largely just a distracting technicality.

    Re: Advocates then assert implicitly that all spending is equivalent to all other spending.

    Really?? Who and how? Needless to say, it’s doubtful anyone would hold such a belief consciously or assert it explicitly, so where do you see it as an implicit assertion? Do you mean just that many advocates refer sweepingly to tax credits and deductions for purchasing particular products (or for producing particular things as in the case of ethanol) and argue for reduction/elimination of them as a category or in general?

    Re: Len Burman, I’ve seen him write very clearly on this topic. Sounds like you’ve made an individual request, and I’d be interested in your thoughts if/when you get a response. I see you’ve seen his response to Jon Stewart. I don’t know if you’ve also seen and But basically, the same stuff has been explained repeatedly in Op-Eds by Martin Feldstein in the WSJ and by others of both right and left.

    And re: that second link (and, unfortunately, many comments by some folks on blogs), I do find quite silly the whole red herring fixation by some who probably know that advocates are at least generally NOT talking about things like lower tax rate for cap gains (but rather are speaking of tax deductions and credits for economic behavior unrelated to type or level of income), yet who insist on saying essentially “Well, the term ‘tax expenditures’ is used by some to include such things, and for that matter one could argue that anything less than 100% taxation is a ‘tax expenditure’ [yadda, yadda], and we can’t all agree on a baseline, so let’s just drop the whole topic because there’s no practical application to any conceptual discussion of the nature of any such provisions.” It’s like some folks want to avoid the issue by focusing excessively on the label, only to point out that what that label covers is (or at least can be) unclear, rather than just looking at the relevant subset of that potentially broader set (the subset to which advocates are really referring, generally speaking). It’s silly.

  15. comment number 15 by: AMTbuff

    Re: Advocates then assert implicitly that all spending is equivalent to all other spending.

    Really?? Who and how? Needless to say, it’s doubtful anyone would hold such a belief consciously or assert it explicitly,

    I didn’t write that they BELIEVE the equivalence. Very clearly they prefer explicit spending to giving tax breaks. Just as clearly their political opponents tend to prefer giving broad-scope tax breaks. Why? Because the two types of “spending” are very different from each other. They are not equivalent in any sense that is both useful and general.

    Explicit spending tends to be targeted to increasing social welfare without much thought to deadweight loss. Tax breaks tend to have minimal social welfare benefit and minimal deadweight loss. Not equivalent. Just as military spending and welfare spending cannot be traded for each other without a partisan fight, neither can broad-scope tax breaks be traded for explicit spending without a partisan fight. People who use the term tax expenditure are attempting in vain to obscure the partisan aspect of the change they propose. The attempt to obscure can only succeed if you believe the implicit (and incorrect) message that the two types of spending are equivalent in all important aspects.

  16. comment number 16 by: Brooks


    As my question indicates, I know you weren’t saying they believe it. I was asking where you saw an “implicit assertion”.

    I wish you’d be clearer. What are you saying they are implying (or that is some implicit premise) — that what is equivalent to what?

    I doubt you’re really saying that they are implying in any way that “all spending is equivalent to all other spending”, since no one would think such a thing. So just tell me clearly what you mean.

    Are you just saying that they (deliberately or otherwise) obscure/overlook some inherent or general differences between these tax credits/deductions vs. explicit spending in general (including transfer payments, stuff government buys like military aircraft, etc.) or just vs. subsidies in explicit spending form?

    Please be clearer.

  17. comment number 17 by: AMTbuff

    “Tax expenditures are exactly like spending” obscures the fact that spending on your favorite X is not the same as spending on my favorite Y. $10 of spending on X may harm the economy as much as $100 of spending on Y. At the same time, $10 of spending on X may improve the situation of the poor more than $100 of spending on Y.

    Therefore replacing a tax expenditure for X with explicit spending for Y is often a very partisan change. And this is the only kind of change ever recommended. It’s NEVER to replace a tax expenditure for X with explicit spending for X as in all your examples.

    As a class, tax expenditures tend to be more in the Y category. Explicit spending tends to be more in the X category. Feel free to disagree.

  18. comment number 18 by: Brooks


    Still unclear. I really wish you’d just state clearly what types of things you are saying they are implying are equivalent. Are you really saying that you think advocates of reducing those tax credits/deductions are saying there are no differences between any of them (or even all of them taken as a group) vs. any kind of explicit spending (or vs. explicit spending taken as a group)?? I don’t think anyone would imply such a thing, given that we’re talking about such a variety of programs, not to mention that subsidies (in either form) are different from plain transfer payments and different from government buying things itself. Maybe I’m still missing what it is you’re saying, but you sure aren’t helping with any clarity.

    Re: replacing a tax expenditure for X with explicit spending for Y is often a very partisan change. And this is the only kind of change ever recommended.

    Huh? I don’t see such a tendency of those (on right, left, center or unknown) who want to reduce those tax expenditures saying “Let’s reduce that tax credit/deduction so we can spend more on this [explicit spending] program.” Maybe what you mean to say is that some advocate reducing some tax credit/deduction rather than reducing (or reducing further) some explicit spending program (because they’d prefer to reduce subsidies for Products X and Y rather than reduce military or social spending or whatever at whatever point).

    Anyway, unless you can state clearly what you’re claiming that those folks (among whom I include myself) are implying, I should probably stop spending time trying to get clarity.

    As for your point about your view of the overall benefits/costs of such tax provisions vs. the benefits costs of explicit spending, there too I’d need some clarity from you. What are you referring to vs. what? I can’t spend much more time tonight on back and forth just trying to get you to be clear on what seem like a simple matter, so this will be either my last attempt tonight or close to it.

  19. comment number 19 by: Brooks


    As follow up to my comment above, perhaps this will help.

    When someone, referring to tax credits/deductions for purchasing (or producing) particular products, says “Tax expenditures are exactly like spending”, that does NOT mean they are implying that they are saying that what those tax provisions they see as “like spending” are no different from anything on which we spend explicitly. They (we) are simply saying that those provisions are at least closer in nature (incentives/rewards, effects, etc.) to spending (in particular, to subsidies in explicit spending form) than they are to lower tax rates. Obviously one subsidy can be very different and more or less desirable than another subsidy, and obviously subsidizing (in either form) the things we subsidize is different from the various things government buys and from various transfer payments, etc.

  20. comment number 20 by: SteveinCH

    On the “procedural” question, what follows is from the Hill.

    “Coburn’s amendment is likely to fall short of the 60 votes needed Tuesday, in part because Democratic leadership – irked by Coburn’s surprise procedural maneuvers last week to secure a vote – has been whipping against it.”

    So the Dems voted against the provision because they didn’t like the way Coburn brought it up for a vote. Boy that’s compelling.

    Diane, nice update but the title of the post is still horribly wrong.

  21. comment number 21 by: AMTbuff

    Maybe an example will help you. Made-up but realistic quote: “The mortgage interest deduction costs $100B per year. Instead of spending that on affluent homeowners, let’s spend the $100B on Medicare.” Implying that $100B of Medicare spending will cause no greater damage to the economy than did the mortgage interest deduction. I claim that the implication of economic equivalence is false, in fact very far from true in some cases, and that failure to discuss this hidden assumption explicitly is deceptive.

  22. comment number 22 by: Brooks


    Yeah, no kidding. That’s exactly what I just said I don’t see as a tendency among advocates of reducing “tax expenditures”.

    Moreover, even for those who do advocate such things, it’s strange for you to say that they are implying no difference between the two in terms of “economic damage” or economic impact generally, as if any spending is equivalent to any other spending in this regard. It’s just bizarre for you to attribute such an implication or implicit premise to those who advocate such policy changes.

  23. comment number 23 by: SteveinCH

    Implicitly Brooks, what AMT describes is exactly what is being done. Just because a position isn’t articulated doesn’t mean it isn’t intended.

  24. comment number 24 by: AMTbuff

    Explicit spending programs have economic consequences that are similar to each other, provided that the money is spent domestically.

    I believe that broad tax breaks have economic consequences that are much milder than explicit spending. That’s why I say that calling them equivalent to “spending”, full stop, is deceptive.

    You may not regard omission of a major difference as deception, but I do. I hold economists to higher standards than car salesmen. I expect full disclosure of all relevant factors.

  25. comment number 25 by: Brooks

    It doesn’t help for you to add vagueness/opacity (and quite possibly irrelevancy) when I’m seeking clarity from AMT. We’re talking about his attribution of an implication (or an implied premise) to a particular group. If he can clarify what he means and what basis he has, I’m all ears. If you can on his behalf, maybe that would help, but first you’d have to get right what the question is.

  26. comment number 26 by: SteveinCH


    Unless you are now the owner of this blog, you can stop trying to police it.

  27. comment number 27 by: SteveinCH

    The entire premise of those who obsess about tax expenditures is to increase revenues in order to pay for other forms of current spending. That is exactly what AMT was describing.

    Just because it isn’t articulated as a one for one trade doesn’t mean it isn’t.

  28. comment number 28 by: Brooks


    LOL, that was ironic. I told you your comment didn’t help, but I’d be willing to listen if you could try to say something relevant and clear. Your response was to tell me to “stop” doing something on this blog while ironically telling me I shouldn’t try to police this blog. Points for comical, oblivious irony, Steve.

  29. comment number 29 by: Brooks


    Please try to pay attention if you’re going to interject, particularly when you’re interjecting after someone requested clarification (from someone else). I’m not going to spend endless time explaining things to you (I’ve done way more than enough of that on the central point re: “tax expenditures”, a term I’m just using for shorthand, not to spark yet another round of utter confusion and a giant detour to irrelevancy on your part). But in short, you are missing that AMT, although still quite unclear, seems to have been referring to some equivalency he claimed that advocates of reducing “tax expenditures” were implying or trying to get others to think or which was supposedly an unstated premise of theirs. I’ve asked him to clarify what equivalency he’s talking about, and from what I can tell the equivalency he may be referring to is a strange thing to attribute to people just because they prefer one policy over another. But it seems you’re not getting any of this.

  30. comment number 30 by: SteveinCH

    Thanks Brooks.

    Points for being you : )

    Long, confusing and obnoxious.

  31. comment number 31 by: AMTbuff

    Brooks, people have told me many times that I write very clearly. Please re-read as necessary and I think you’ll understand what I wrote. It may not be precisely in the format and terminology you prefer to see, but it’s in concise English. I’m sure that it is crystal clear to everyone except you. If you don’t believe that, ask for a straw poll.

  32. comment number 32 by: Brooks


    Believe me, the fact that you are confused by something I said most certainly does not mean — or even make it more likely — that I said anything at all confusing.

    And as I’ve said before, quite often my comments grow long in proportion to how many of your non sequiturs, irrelevancies, and other assorted errors I need to correct, explain, and try to guide you away from and toward something that makes some sense.

    But you’re right about my comment being obnoxious, so you’re at least 1 for 3 this time.

  33. comment number 33 by: Brooks


    Hey, I’ve asked you to clarify what you were claiming those advocates were equating to what, and because you still wouldn’t I asked about particular distinctions that I speculated were possibilities. In the end my best guess was that you were claiming that those advocates were implying (and/or wanted others to believe) that all the economic effects of “tax expenditures” were the same as those of any other type of spending, and I’m saying that’s a strange thing to attribute to them.

    It’s been like pulling teeth to get clarity from you on this one, regardless of whether or not you generally write clearly.

    I don’t need to see a poll, but as I’ve said, if anyone can be clearer about what you may mean than you’ve been, I’m all ears.

  34. comment number 34 by: Brooks


    I missed your 7:54 until now. So it seems that your point is something I speculated earlier. All you’re saying is that you think those advocates are obscuring or overlooking some differences in economic effects that you think generally (or inherently) exist between “tax expenditures” and explicit spending. Again, I don’t see why you’d attribute such a dynamic to those who advocate reducing “tax expenditures” generally, or even to those who do so for the purpose (explicit or unstated) of spending more or cutting less from explicit spending.

  35. comment number 35 by: AMTbuff

    Brooks, you are like the kid playing softball who, every time he is at bat, takes dozens of pitches until he gets exactly the pitch he wants.

    After a while the other kids ban him from their games or they just quit and go home. I’m doing the latter now.

  36. comment number 36 by: Brooks


    Nope. Hate to break it to ya’, but there’s a difference between your being tediously unclear vs. my insisting on something unreasonable, and this was a case of the former. I’m surely not challenged re: reading comprehension, and I certainly have no interest in spending time going back and forth with someone just to get clarity on some apparently simple matter that should be easy for one to clarify. So even your theory as to my conduct and motivation is unclear. Oh well.

  37. comment number 37 by: Vivian Darkbloom


    Regarding your comment #10, you wrote:

    “I now believe that the original identity is incorrect when considering mass market tax breaks. ”

    I think you and I are pretty much in agreement on the basic issue of double counting. And, I think my arithmetical example proves it (reducing a tax subsidy a tax expenditure or whatever you want to call it by $100 does not reduce the deficit by $200). Nevertheless, I’m not exactly sure what you intended to convey by the above sentence and I would invite you to explain it further, if you have the time.

  38. comment number 38 by: Vivian Darkbloom

    So, now the vote is in and the tax subsidy for ethanol has been repealed with nearly equal support by both parties. Of those voting against, 14 were Republicans and 13 Democrats. This, in itself, is slightly misleading because if one looks at those voting against, it is pretty much along geographical, not party lines. For example, both Grassley (R) and Harkin (D) of Iowa voted against. Party leaders, seeing that the measure would pass, gave sentators from the “corn states” a pass to vote a mostly symoblic; but locally important, “no”.

    This is good news. Let’s hope the adult behavior continues. But I don’t agree with Economist Mom that it merely represents, exclusively, a coming of age of members of only one particular party.

  39. comment number 39 by: AMTbuff

    “I now believe that the original identity is incorrect when considering mass market tax breaks. ”

    The “original identity” is “tax expenditure = spending”. Mass market tax breaks stretch that purported equivalence to the breaking point. At the limit you have Ohio’s $20 per person credit, which some people still call spending even though it’s very clearly a feature of the tax rate schedule.

  40. comment number 40 by: Vivian Darkbloom


    OK, I understand that. I continue to believe that what we lump together as “tax expenditures” is grossly misleading because no two are alike. There is more a less a continuum, sort of like light shades of grey to black, wherein some “tax expenditures” are so targetted as to clearly constitue spending and others are, as you say, so widespread as to more closely resemble reductions in tax.

  41. comment number 41 by: Brooks

    AMT and Vivian,

    Again, with few exceptions perhaps, people who are advocating reducing “tax expenditures” are NOT talking about some “per person tax credit” (which is essentially a lower tax rate) or the lower tax rate for capital gains, or the lower tax rates of a progressive tax rate structure, or for that matter the fact that we tax at less than a 100% rate.

    They (we) are talking about tax credits and deductions for purchasing specified products (or producing them in the case of ethanol) and perhaps some other economic or lifestyle choices and actions other than earning more or less income.

    The only people I see confusing this issue are the folks who react to those advocates by saying “Whoa there, ya’ know lots of things could be labeled ‘tax expenditures’ that are not like spending in nature (e.g., a per person tax credit), and anyway you could call any income that isn’t taxed a ‘tax expenditure’ until you have some inherently subjective baseline other than 100% tax rate, so there’s really no practical application to discussing the nature of ‘tax expenditures’, and we should be very wary of those who advocate reducing them because they are using a label for some category of provisions whose boundaries are very unclear.”

    As I said in my last paragraph upthread at, it’s just silly. It’s not like we have to have some up-or-down vote on everything that can be (or is officially) labeled a “tax expenditure”, just because people are using that term as shorthand for the provisions to which they are actually referring.

    It would be much more sensible and useful to just address what at least most advocates are at least mostly talking about.

  42. comment number 42 by: Brooks

    And that said, I understand AMT’s argument (and Vivian’s concurrence) that, as such a tax credit/deduction becomes broader and broader, it moves along a continuum from similar to spending to similar to a tax rate cut. As I’ve said, I believe in a theoretically pure case of a literally universal (non-refundable) tax credit of the same amount (or perhaps even varying by income, but not by how much spent on the product) for purchasing some product and spending no more on it than they would have without the tax credit (e.g, if everyone w/ tax liability over $1 got tax credit of $1 if they spent $1 or more on any type of food during the year), that would be like a tax rate cut.

    There’s a conceptually unclear area for a nearly-universal scenario, because then you end up with, as AMT has called it, a “penalty” — imposing a higher tax rate on the income of anyone who doesn’t purchase that product, and indeed (in many cases) imposing varying sizes of that penalty for not spending as much on that product (or set of products) as one could have spent to maximize the size of the credit/deduction, which basically means we have no income tax structure, just some hybrid of a structure for taxing income and lack of (higher) consumption of particular products.

    In any case, even “broad” examples like mortgage interest deduction, healthcare exclusion, charity deduction, etc. are still significantly distant from that pure scenario in terms of universality of benefit and (dollar) amount of that benefit, as well as the condition of purchasers (or producers) not purchasing (or producing) more of those products than they would have without the tax credit/deduction.

    So, while I respect AMT’s argument re: the relationship between breadth of distribution and the nature of one of those tax credits/deductions (how close in nature to spending vs. lower tax rate), I disagree at least as a (very large) matter of degree. But I am glad to see a more thoughtful and sensible approach than those who simply hold that, if it’s a tax credit/deduction, it’s equivalent to or at least closer in nature (incentives, effects, etc.) to a tax rate cut than it is to spending, simply by virtue of the fact that it means some people pay less in taxes.

  43. comment number 43 by: Vivian Darkbloom


    Against my better judgement, I am responding to your post. You may recall that you and I had some exchanges some time ago on the issue of tax expenditures. What I wrote at the time was that a “tax expenditure”, properly defined, actually constitutes spending. But, I clearly stated that to have any discussion on that point, one would need to first define “tax expenditure”. You were adamant that that was not necessary and refused to do so or to admit that it was even relevant. Also, although I did not read the entire string of exchanges you had with AMT or Steve, as I recall, one or the other (or both) requested that you list some items you considered “tax expenditures”,, presumably as a substitute for defining it. That, as I recall, you also refused to do. Perhaps this comes as news to you because this debate has gone on so long you have forgotten where you started from.

    Now, your last post seems to indicate that we may be making some progress, since your latest strongly suggests that, indeed, the definition is important. In fact, if everyone agrees that, properly defined, “tax expenditures” constitute spending, then the only thing that really is important is the definition. And, saying that you need a “baseline” is just another manner of saying that you need a proper definition or criteria for what a “tax expenditure” is.

    As indicated above, I happen to believe that there are few tax provisions that are pure “tax expenditures”. At one end of the spectrum the $20 credit comes about as close as one could get to a tax reduction rather than a spending outlay, as would the personal exemption or deduction. At the other end, you might have some very narrowly targeted tax benefit like the ethanol credit which could properly be characterized as a substitute for direct spending which is delivered for convenience (or obfuscation) purposes directly through the tax code. From those more or less obvious examples, there is a continuum, as I said, along this spectrum from reducing tax to increasing spending. If you are not interested in defining common terms for purposes of a meaningful discussion, I’m not interested at all in participating any further. In fact, I think I’ve pretty much exhausted anything meaningful I have to say about this anyway, so I don’t see any point in continuously repeating myself.

  44. comment number 44 by: Brooks


    You are confusing several things in that comment, including stuff I’ve already explained in correcting you back then (at least once).

    No, the point I made was not that the definition of “tax expenditures” was not necessary or that it was irrelevant, only that it was unnecessary and irrelevant to the questions I was asking and the point I was making. Big difference, obviously. I won’t take time to lay this all out again as meta discussion.

    Re: listing actual examples of what I was referring to, first of all, all along I’ve been mentioning some examples (mortgage deduction, health insurance, tuition tax credit and several others). What I haven’t done is taken the time to produce a comprehensive list of all provisions that fit what I’ve described, which is a tax credit or deduction for purchasing a particular product (or producing it in the case of ethanol). (And I’ve stated repeatedly that I include the health insurance exclusion among those provisions). And yes, it’s unnecessary for me to produce such a list for us to have a sensible discussion of this policy issue. Steve’s silly demand for it is at best just an attempt to get to the same silly semantics-based argument that I’m saying is silly (that the label can be applied subjectively, and that without agreement on an inherently subjective baseline we just don’t know what a “tax expenditure” is so we may as well just drop the whole topic because there’s no practical application of any related discussion). (At worst, it’s been one of Steve’s many pathetic efforts to save face, but that’s another matter).

    My last post reflects nothing new among my comments, nor anything inconsistent with my comments re: the distraction of semantics. As I’ve said to you and others many times, you should try to break with your fixation on labels and just talk about the policy (or type of policy) being discussed and think about what it does (incentives, effects, etc.). No baseline is necessary, no definition of “tax expenditure” is necessary, as demonstrated by the fact that I have, for the most part, stopped using the term and have taken to usually writing out tediously “tax credits or deductions for purchasing (or producing) particular products”. Again, what’s happening is that some people are forcing a discussion of the definition and scope of a label just so they can point out it’s subjectivity or official inclusion under that label of some things that don’t fit what some are speaking of when they use the shorthand of “tax expenditures”, and just so they can essentially say “See, we don’t know what they are, so let’s just stop thinking about it”. Again, it’s just silly.

    Let me put it this way: Try having the discussion without using that term, as I’ve generally been doing over the last few weeks or couple of months, just to try to avoid the distraction of the term and related detours into irrelevant semantical discussion (Almost comically, it hasn’t prevented some from still trying to force a shift of the discussion to the definition and scope of that label, even though I’m clear about what I’m talking about and not using that label.).

    It seems you may be using “tax expenditure” to mean “a tax credit/deduction that is similar in nature to spending”, which is fine, but I’d still strongly suggest avoiding the term because it causes some people’s brains to seize up and become impervious to reason and relevancy. They see the term and it’s a quick jump for them to what they see as utter hopelessness for any discussion because the definition of the term is unclear.

    Re: your last paragraph, we agree on those extremes. As I explained, it’s conceptually fuzzy if there’s a continuum vs. all-or-none, but even assuming it’s a continuum I think as we move away from that pure example (the per person credit or the example I gave for food), the shift from “similar to a tax rate cut” toward “similar to spending” is very rapid, and that’s what I mean when I say I have (under the continuum assumption) a large “matter of degree” disagreement with AMT (and with you, apparently).