What the Heck Is a "Tax Expenditure"?

Apr 1, 2011

First, the good news: there is a group of U.S. Senators called the “Gang of Six” – three Democrats and three Republicans who are addressing the federal deficit issue in a constructive, bipartisan, and I hope sensible way. They are filling a leadership void that has existed in every branch of the federal government. Uh, am I being too subtle here? (Hint: I am not really referring to the judicial branch.)

One of the Gang of Six, Sen. Michael Bennet (D-CO) was interviewed today on NPR’s “Morning Edition.” During the interview, speaking of the need to reform our tax code, Sen. Bennet said, “… on the income tax side of the ledger, we collect a trillion dollars in income tax every year. We spend, in what they called tax expenditures – which are things, deductions of one kind or another – we spend $1.2 trillion.”

HUH??? Did you understand what he said there? It kind of sort of sounds like he said we collect $1 trillion in taxes, and then we spend $1.2 trillion collecting the taxes. Did he just suggest that we lose $200 billion trying to collect taxes? No, what I THINK he meant was that federal income tax collections are $1 trillion, but that figure is the net result after $1.2 trillion in deductions and loopholes that taxpayers use. What Sen. Bennet, and many others, are suggesting is that it’s much more efficient to have a simplified system that doesn’t involve taxpayers and the IRS having to wade through all that wacko tax system complexity.

Oh, and did you catch the term “tax expenditures,” meaning deductions and loopholes? Not only is that inside-the-Beltway jargon, it’s pointlessly confusing – it’s like referring to a cut in your pay as a “negative raise implementation.” And he characterizes these deductions as “spending,” which is like defining a “discount” as “paying customers to buy your product.”

Sen. Bennet, you are on the side of the angels here. And it’s critical that the public have a clear understanding of the very, very high stakes involved in these issues. Please don’t muddy the waters with Casey Stengel-like sentences and impenetrable jargon.

“Painting with Numbers” is my effort to get people talking about financial statements and other numbers in ways that we can all understand. I welcome your interest and your feedback.

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