The fuzzy difference between spending and taxes
Greg Mankiw's column arguing that "the distinction between spending and taxation is often murky and sometimes meaningless" is worth a read. One of the cruder measures that both liberals and conservatives have been using to assess the deficit-reduction plans is their proportion of tax hikes to spending cuts. But that doesn't tell you very much. Liberals, for instance, want to see relatively more of the deficit reduction done through taxes, as the assumption is that most spending is progressive, so you don't want much less of it, and most taxes are progressive, so if you have to close a budget gap, that's the fairest way to do it. But that's not true for all spending, or all taxes: Cutting $100 billion from the defense budget is much preferable to raising $100 billion from a value-added tax.
And that goes double when we're talking about raising taxes by eliminating a specific tax break. Mankiw gives the example of a legislative effort to encourage snipe hunting: One side proposes that "every time an American tracks down a snipe, the hunter should get a $100 credit to reduce his or her tax liabilities.” The other side says that "every time an American bags a snipe, the federal government should pay him or her $100.” If you eliminate the former, you're "raising taxes." If you eliminate the latter, you're "cutting spending." But they're basically the same thing.
One of the interesting moves of the various commissions has been to classify reforming tax expenditures like the mortgage-interest deduction as spending cuts rather than tax increases, which has arguably allowed them to raise more money on the tax side than people realize. We'll see whether it actually works.
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