Tax expenditures cost a fortune

Ezra Klein shines a light this morning on one of my favorite issues: saving money by scrapping tax subsidies.

For instance, we’ve got one government program that hands people money to buy houses that, in most cases, they would buy anyway. They get even more money if they buy a more expensive house. Over the next five years, that program alone will cost almost $500 billion. That can’t be the best use of taxpayer dollars.

Another federal agency will spend more than $400 billion to reward people for making money by investing and earning capital gains and dividends rather than by going to work and taking their income in wages. I like investors and I participate in the market, but is this really the sort of activity that requires a $400 billion subsidy? […]

There is tons of this stuff. The government pays employers $700 billion to offer health insurance to their employees, which no economist would say is a good idea. We’re subsidizing select parts of the energy sector, spending almost $2 billion, for instance, to subsidize “open-loop biomass” rather than simply pricing carbon emissions and letting the market work out the details, and we’re handing $4 billion to oil and gas companies that explore for new reserves.

Democrats would love to scrap many of these measures. It would save a fortune, could be applied directly to deficit reduction, and would obviously reduce the need to cut more worthwhile spending elsewhere.

But all of the measures Ezra mentioned, and many more just like them, have been deemed untouchable by Republicans. The problem is that they’re not actual spending measures; they’re investments the government makes through the tax code. The provisions are called “tax expenditures” — officials want to achieve specific policy ends, so they “spend” money by creating tax subsidies and loopholes.

If this seems familiar, it’s because this is exactly the point of the cover story in the current print edition of the Washington Monthly. It explains, among other things, that nearly all of these expenditures benefit the wealthy, making them regressive and unnecessary.

So why don’t policymakers pursue fiscal policy by scrapping these expenditures? Wouldn’t it be easier, better, and more popular to target these expenditures rather than, say, cutting Medicare?

The problem, of course, is Republicans and their unyielding philosophy. We can’t save money on tax expenditures, the GOP says, because scrapping tax subsidies and loopholes would count as “tax increases.” And tax increases are, you know, bad, even if Republicans can’t, won’t, and don’t want to defend the expenditures themselves.

The point isn’t to save money or lower the deficit, Republicans say; the point is to protect the conservative ideology and the GOP brand.

At a certain level, it’s a semantics fight. Whether the government writes a $4 billion check through the appropriations process to oil companies, or rewards the oil companies with $4 billion through a tax subsidy is irrelevant — the practical result is the same. But for Republicans, it’s not irrelevant at all, because their philosophy tells them the two approaches are vastly different.

And because conservatism isn’t a pragmatic governing philosophy, this rules the day.

It’s one of the reasons we can’t have nice things.