Richard Epstein

The Tax Expenditures Muddle

The current impasse over the debt ceiling has been resolved, at least in the short run, by a set of compromises that leaves no one satisfied. At the same time, the long-term imbalance of government expenditures outpacing its revenues remains largely unsolved. It is to that issue that I devote this column, which builds on the work of my last two essays for Defining Ideas (you can find those essays here and here).

What political and economic forces have led the United States on its downward path to fiscal irresponsibility? To be sure, the uneasy combination of high government expenditures and modest government revenues is the surface cause of the current situation. But the techniques deployed to fuel the expansion of government power are truly driving the current malaise.

Two ways to make government bigger involve borrowing money and imposing progressive taxes. A third notable technique is tax expenditures. Tax expenditures allow the scope of government activities to increase without going through the nasty process of an explicit government appropriation and transfer payment.

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