Friday, September 23, 2005

GAO, OMB Spar over Tax Expenditures

A GAO report issued a report today criticizing excessive growth in tax expenditures. Some observers believed that the report was timed to influence the President's Tax Reform Commission; the Office of Management and Budget was NOT impressed, calling the draft report "deeply flawed". The administration basically viewed the report as a back-door means to put pressure to raise taxes; on the other hand, the GAO says that the massive increase in tax expenditures, tripling in real dollars in the last three decades and approaching 3/4 of a trillion dollars, adds to the risk of long-term structural deficits.

I guess I see merit to both sides here. The GAO has a legitimate, if undermade, point that growth in tax expenditures almost always means growth in tax code complexity and that tax incentives are a back-door form of federal spending. On the other hand, there is some evidence that (at least pre-Katrina) that tax cuts may indeed have been growing revenue fast enough to reduce the deficit (see "Revenge of the Laffer Curve" in the August archive) and that concern about tax expenditure growth would be more credible if there was more evidence that direct spending growth was in ANY sense being reined in.


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