Obama is a born again deficit cutter. He wants, according to his speech at George Washington University this week, to slim down the nation’s deficit by a whopping four trillion dollars in the next twelve years. To achieve this miraculous goal he has a top secret weapon. It is called the “tax expenditure.”
Now tax expenditures are not new, they have been around for many years, only we knew them by a different name. The old- fashioned name which is heretofore banned from the lexicon is: tax increase.
But everyone knows tax increases are bad, so Obama and his team must be thinking that if they changed the name the voters wouldn’t notice. There is a deeper philosophical reason for the changing language, and it has to do with the fundamental difference between his vision and the Republicans’ vision for the future.
If you assume that all money belongs to the government and the people are privileged to get back some of the product of their labor, then the money doled out to the pockets of Americans must be expenditures.
It works like this. You buy a home and pay lots of interest to the bank in the form of a mortgage. When at the end of the year we add up your income, you are allowed to deduct the interest you paid to the bank from that income. This lowers your overall income tax bill.
Republicans believe that the lower tax bill is your total tax bill. Obama believes that your tax bill was actually higher, and the government was giving you money to help pay the mortgage. Hence, when he takes away your mortgage deduction, he is actually cutting government “tax expenditure.”
So Obama is actually cutting government spending by increasing your taxes. You must credit the Obama team for this genius marketing of tax increases.
The budget is spinning out of control. We can thank President Bush for budget deficits averaging $300 billion annually. Ironically, after harshly criticizing Bush's budget deficits, Obama proposes budgets which at best with an economic recovery will average $600 billion, and more likely, will average nearly one trillion in red ink.
If your eyes have glazed over from this budget talk, imagine this is your family budget. We all wish for more revenue each year, but we instead have to deal with the reality that our wages cannot be wished higher.
Same is true of government. Obama will find that if his plans to aggressively raise taxes “tax expenditures” passes, then the economic recovery will likely slow and the still anemic job creations will shrivel up.
Government can only grow with the rate of economic growth. Tax revenue naturally heads up with a robust recovery.
Instead of spending time thinking about how they can grind more money out of the hinterlands, the elite in Washington should focus on helping the engine of free enterprise get revved up.
Economists are clear; money in private hands benefits the recovery much more than a of government spending. They call this the multiplier of the spending. Because government spending is allocated based on political decisions more than economic justification, it is often spent on unproductive uses.
Private businesses and families that misuse money pay a consequence for their behavior and hence they make better decisions in the allocation of funds.
The only solution to the deficit crisis is spending restraint coupled with government reform, modernization of the regulatory process, and a realization that Washington spending isn’t the solution to all life’s ills.