Congress shouldn't forget tax entitlements in its search for deficit reduction
驰别蝉迟别谤诲补测,听Washington Post聽columnist Bob Samuelson聽urged聽lawmakers to 鈥渏ust eliminate鈥he whole notion of entitlements.鈥� 聽His provocative argument: The very word 鈥渆ntitlement鈥� makes people believe these programs are somehow untouchable. They are, for instance, effectively exempt from the sequester鈥檚 cuts even though they represent two-thirds of all government spending.
Bob is on to something聽but he misses a key piece of the story鈥攖ax subsidies, or what we might call tax entitlements.
He focuses only on the familiar spending entitlements鈥擬edicare, Social Security, college loans, farm subsidies, and the like that account for about $2 trillion of the federal budget in fiscal 2014.聽
But there is another $1 trillion-plus in聽federal tax entitlements聽that are treated with the same legislative deference.
Except that they are part of the tax code, these special subsidies are largely indistinguishable from the spending that Bob highlights. Like entitlement spending, they are automatic benefits you receive based on characteristics such as your age, family structure, and income. And, in the case of tax subsidies, on the particular form of income you receive or the economic activity in which you engage.
Like spending entitlements, these tax expenditures聽are open-ended. Unlike appropriated funds, there is no limit to their total annual cost. You meet the definition of eligibility鈥攜ou get the dough.
I鈥檓 not arguing that all entitlements鈥攖ax or spending鈥攁re bad. Indeed, while some are boondoggles, others are enormously important. And it would be hard to imagine making major changes every year to transfer programs such as Social Security or tax subsidies such as, say, the mortgage interest deduction. Such uncertainty would create terrible problems. 聽聽
But no program is perfect. Yet, unlike agency spending, Congress rarely revisits these tax goodies. They have achieved legislative immortality. And they add a bundle to the deficit.
For instance, in 2014 the government will provide about $250 billion in income tax and payroll tax subsidies for people whose employer buys them health insurance. You get employer-sponsored insurance, you are automatically entitled to the tax break that goes along with it.
It鈥檚 the same with people who take out loans to buy a house. You get a mortgage, you get a tax deduction (with limits only for loans over $1 million). That tax break increases the deficit by more than $100 billion a year.
The lost revenue from these mega-subsidies is enormous, rivaling all spending entitlements except for Medicare and Social Security.
And the list goes on and on. If you are poor and have kids, you get tax subsidies. If you are rich and give large gifts to charity, you get a tax subsidy. If you send you kid to college, save for retirement, buy municipal bonds, are a farmer, a veteran, or a retired railroad worker you may get special tax breaks.聽You are entitled.
Bob notes that about 50 million Americans get Medicare and about 35 million got subsidized meals in 2012. That鈥檚 not聽so different from the 44 million who got a federal tax break to offset their state and local taxes in 2011, the 36 million who got a mortgage interest deduction, or the 38 million who deducted their charitable gifts.聽
The thing is, these tax entitlements are often hugely inefficient. We give tax breaks for retirement saving to many people who would save anyway. We give subsidies to producers of alternative energy without evidence that these products reduce overall energy use or greenhouse gasses.聽
But like their spending cousins, they go on, seemingly beyond聽congressional control. Lawmakers talk聽about closing 鈥渓oopholes鈥� through tax reform just as they vow to modernize Social Security or reform Medicare. But these days nothing ever seems to happen on either front.
Samuelson is right when he says the huge spending transfer programs are absorbing resources that could be used for deficit reduction or even other priorities and聽that they should not be immune from congressional review. But exactly the same is true about tax entitlements.聽聽
