Wednesday, April 14, 2010

tax expenditures

Why talk about taxes in a blog on the politics of U.S. foreign policy? Because I believe that economic weakness hurts foreign policy both at home and abroad, and that record high deficits can lead to such weakness. Also because I'm interested in the topic and find it largely neglected.

The history of the concept is interesting politically. When Congress developed its budget process in 1973-4, liberals pressed for information on tax loopholes -- that is, the revenue foregone because of various provisions in the tax code. As part of its budget submissions every year, OMB has to provide data on these "tax expenditures." Here's the latest table.

Some "loopholes" are widely loved -- such as the $92 billion for the deduction for home mortgage interest and the $12.6 billion for excluding benefits and allowances for military personnel. But when lawmakers consider how to reduce the deficit, they should not limit themselves to cuts in programs, services, and benefits and to increases in existing taxes. They should also consider the $1.3 trillion in tax expenditures, some of which could be eliminated in order to gain some of the revenue lost. The Center for American Progress has a good overview report.

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