Note from Dan: This policy-oriented and nonpartisan post comes form Ron May. He posted it to Thursday’s OPEN thread.
“I promised that I would continue to comment about tax reform in the days ahead. Previously I made suggestions about how to make changes to Social Security in order to make it more financially stable. Today I want to begin my comments regarding taxes and how to reform them in an equitable way.
If I was to ask you what the largest “expenditure” is in the federal budget I’m sure I would get some interesting answers. The Office of Management and Budget has recently said that our projected deficit for this year’s federal budget is going to be in the neighborhood of $1.4 Trillion. There are all sorts of proposals floating around to reduce that number. Some are actually worth looking at. Some, in my view, should be cast aside without much thought.
The Office of Management and Budget outlines the following major expenditures in the 2012 Budget. Defense & Security ($800+ Billion); Medicare & Medicaid (Approx. $700 billion); Social Security (Slightly less than $700 Billion); Other Mandatory Programs (Approx. $610 Billion); Domestic Discretionary Programs (Approx. $475 Billion); Interest on the Debt ($200 Billion) and last but not least Tax Expenditures ($1.1 Trillion).
Did you see that last item? The biggest expenditure in our federal budget each year is the total cost for individual & corporate tax expeditures. If we eliminated that one item we would eliminate nearly 80% of our annual deficit. You say, well that should be easy. But you would be wrong. A good many of you enjoy deducting your mortgage interest, charitable contributions, state and local taxes, etc. from your annual tax return. You do if you itemize anyway. Corporations like their tax expenditures as well. Nonetheless, if we are to be successful at tax reform, in my view, we have to begin with the biggest item in our federal budget which is our tax expenditures.
I will close this post by suggesting there are some guidelines which need to be in place as we reform tax expenditures. First, acknowledging that tax expenditures are, in fact, spending. Second, like all forms of federal spending, tax expenditures should be assessed for cost effectiveness. Third, “upside down” subsidies should be made more fair and be better targeted. Fourth, eliminating tax expenditures benefitting seniors living on Social Security, working families, and people with very low incomes would be misguided. Fifth, the tax code should be scrubbed of ineffective business subsidies. Last, common sense, fiscally responsible reforms to tax expenditures do not have to wait for comprehensive tax reform.
Well folks, there’s some of my thoughts on beginning to seriously attack the deficit we now face and the tax and budget reform we need to put in place to put us on a different path. In future posts I will outline more specific ideas on these matters.”