Greenstein: Don't Forget Tax Expenditures

Following up our post yesterday about the Peterson Foundation’s National Fiscal Summit, here’s a bit of what the Center’s executive director, Robert Greenstein, had to say:

“I do not think it is accurate to say that [the long-term budget gap] is simply a spending problem. It is a long-term structural imbalance between revenues and spending.

“Let’s remember that nine years ago, in 2001, the Congressional Budget Office forecast surpluses for several decades and Federal Reserve Chairman Greenspan worried that the surpluses were too large. A number of factors intervened, but one of the key ones was very large tax cuts that were not paid for. I know this isn’t going to happen politically, but it is interesting to note that if policymakers adopted a policy of paying for any of the Bush tax cuts that they wanted to extend, rather than deficit-financing them, nearly 40 percent of the fiscal gap through 2050 would go away.

“Also, the distinction between spending and taxes is artificial. We have over $1 trillion a year in what the experts call ‘tax expenditures,’ or spending that’s delivered through the tax code. That $1 trillion is nearly as much as the current annual cost of Social Security and Medicare combined, and it’s double the total amount we spend on domestic non-entitlement programs.

“I served on the last deficit commission, the Kerrey-Danforth Commission of 1994, and when Mr. Greenspan testified before us he called these ‘tax entitlements.’ They are: they’re essentially entitlements delivered through the tax code.

“So if we want to keep the pressure on spending, the pressure should be on all the spending that is in the tax code as well as the spending on the other side of the ledger.”