It’s the Government’s Money — They’re Just Letting You Keep It

At a policy forum yesterday, I mixed it up a bit with Jason Furman and Kate Baicker over the concept of “tax expenditures” and whether it is accurate to describe exclusions, deductions, credits, etc. as “government spending.”  I previously laid out my views on the matter here

Earlier this month, my colleauge Andrew Coulson took issue with someone who claimed that “yes, vouchers or tax expenditures in the form of tax credits are public funding.”  Coulson cited court cases that disagreed.  He then commented:

When I see obviously counterfactual, readily falsified claims such as [this], by people who should know better, I’m always deeply puzzled as to how and why they occur. Somebody throw me a bone here.

Here are two possible explanations. 

  1. People who describe the revenue lost to tax breaks as “government spending” wish to suggest that the money, though in private hands, actually belongs to the government, and therefore the government has the right to take it and spend it on something else.  Taking those resources out of private hands (i.e., by eliminating the tax break) is therefore not a tax increase, but merely a reallocation of government resources.
  2. Alternatively (but no less opportunistically), some describe the revenue forgone as “government spending” because they do not like how private actors are spending that money.  Defining it as government spending subjects it to limitations that would preclude the objectionable expenditures — such as when teachers’ unions object that tax credits make it easier for the citizenry to spend their own money on religious schools (read: the unions’ non-union competitors).

Unfortunately, as Jason Furman gleefully pointed out in an email, even Cato scholars sometimes use the term “tax expenditure” — without the scare quotes.