Bruce Bartlett: Tax Expenditures Are A Huge Problem

For his Forbes.com column, Bruce Bartlett attacks the inefficiencies that come from tax expenditures:

Conservatives are united in their belief that government spends much too much and that spending ought to be cut sharply. But they almost universally ignore de facto spending through the Tax Code even though many tax provisions are functionally identical to spending. These "tax expenditures" not only hemorrhage revenue unnecessarily, but they distort private decision-making, create unfairness and reduce economic growth.

The problem of tax expenditures was first identified in the 1960s by Harvard law professor Stanley Surrey, who went to work for John F. Kennedy in 1961 as Assistant Secretary of the Treasury for tax policy. At that time the top marginal income tax rate was 91%, meaning that reducing one's taxable income by $1 saved 91 cents in taxes for those in the top bracket, while earning $1 of additional income netted them only 9 cents. For some people it was worth spending 90 cents to reduce their taxable income by $1, which gave rise to many wasteful tax shelters designed to produce nothing except tax deductions.

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