If anyone ever really bought into the hoary political myth that all Republicans hate big government spending, deficits and debt and that all Democrats love them, you’d think the presidency of Donald Trump would have laid that idea to rest once and for all. After all, as expert after expert has testified in recent months, future deficits and debt have been mushrooming under Trump.
Jonathan Allen of NBC News put it this way last month:
…Trump’s budget is also an indelible snapshot, a frozen image of the moment when the federal government abandoned all pretense of balancing its books.
That shouldn’t be surprising, because Trump and Congress just enacted a spending law that paves the way for an increase of hundreds of billions of dollars in defense and domestic spending on the heels of a $1.5 trillion tax cut.
The result, according to Trump’s budget office: the return of annual deficits nearing the trillion-dollar range for several years and a total debt increase of about $7.1 trillion over the next decade.
And that’s using assumptions rosy enough to make most budget-writers blush.”
What’s all the more remarkable about the newly exploding federal deficits and debt, of course, is the fact that they come at a time during which Trump and his fellow “conservatives” are slashing core, public safety net programs. As Richard Kogan and Guillermo Herrera of the Center on Budget and Policy Priorities explained in a recent post, safety net programs “are not driving the nation’s long-term fiscal problem. That is, they are not the reason that the debt is projected to rise faster than the economy in future decades.”
The real runaway expenditure
Of course, the actual reason for the Trump/GOP deficit and debt explosion is not hard to divine. As anyone who’s been paying even a modest amount of attention to the debate in Washington over the past year can attest, the problem is obvious: massive, unsustainable and irresponsible tax cuts targeted at wealthy individuals and profitable corporations.
What’s more, while Trump has certainly injected a massive dose of fiscal policy steroids into the scheme, the basic policy he is pursuing is nothing particularly new. As Professor Christopher Faricy of Syracuse University’s Maxwell School of Citizenship and Public Affairs explained last week to an attentive audience at a Policy Watch Crucial Conversation luncheon, American politicians of both parties have, for decades now, allowed spending to race further and further out of control in one of the most important, but least-well-understood areas of public budgeting.
The subject in question is referred to by experts as “tax expenditures.”
Here’s how Faricy explained it: When government establishes a tax, it establishes a generally applicable rate or rates. When, however, government provides exceptions to the generally applicable rate by allowing some actors to pay a lower rate or to avoid the tax altogether, that constitutes a “tax expenditure.”
As Faricy cogently detailed the concept, a tax expenditure is, quite literally, no different in any meaningful way from a direct cash payment – say, a “welfare” check or food benefit. In each instance, the government adopts a policy that favors certain individuals (or corporations) by providing them with money that they would not otherwise receive. That some individuals realize the benefit by paying lower taxes (or by receiving a larger tax refund at the end of the year) rather than, say, getting a check or a subsidy each month is immaterial; the effect is the same.
When one looks at tax expenditures in this way – that is, as one more direct public outlay that is, as a practical matter, budgeted each year – the effect on how one views government can be transformative.
As Faricy explained last week and in a book he wrote a few years back entitled “Welfare for the Wealthy: Parties, Social Spending, and Inequality in the United States,” a very different image of “government spending” emerges. Faricy somewhat irreverently refers to it as “the two Santa theory or how Republicans learned to love government spending.”
The massive and regressive impact of tax expenditures
As maddening as the concept can be, tax expenditures wouldn’t be that big of a deal if they were just a niche item that took up only a tiny portion of the budget or if they attacked an important societal ill. Unfortunately, that’s anything but the case. As Prof. Faricy explained last week, tax expenditures are, by some measure, the largest single portion of the federal budget. They are also massively regressive.
In 2013, for instance, long before Donald Trump got his hands on them, U.S. tax expenditures already amounted to well over $1 trillion per year. That number far exceeded the amount the federal government spent on Social Security, Medicare and Medicaid, discretionary defense spending or discretionary non-defense spending.
But wait, there’s more. Not only do tax expenditures swallow a huge part of the federal budget, they redirect money overwhelmingly to the wealthy. In 2015, the wealthiest 20% of Americans took home almost 70% of all tax expenditures. Almost 90% of the money went to the wealthiest 40% of households.
Not surprisingly, while many tax expenditures are popular with conservatives and progressives, they have grown much faster under Republican administrations and, as a general matter, tracked the growing inequality that has gripped the country.
Here in North Carolina, Faricy points out, there is a similar story to be told. This is from his presentation last week:
North Carolina spent $6.2 billion on just 20 tax breaks in 2017-18. The state budget was $23 billion.
There are hundreds of these programs in the North Carolina tax code – many benefiting large companies and corporations.”
So what in the heck do we do?
While the politics may present a very heavy lift, Faricy’s proposed solution in this area is strikingly simple and elegant: start making tax expenditures a part of the budget. If lawmakers had to vote affirmatively for these tax breaks every year – just as they have to vote for, say, Medicaid spending or national parks or new Air Force fighter planes – and journalists actually reported on them in such a way, the final policy outcomes might look very different.
If, for instance, the public knew that a huge percentage of the supposedly sacrosanct federal home mortgage interest deduction actually benefits the wealthy and upper middle class, perhaps complaints about the nation’s spending on rental assistance for people in need might not be so prevalent in Congress.
Happily, the idea of doing something about tax expenditures is not an utterly new or foreign one. During their long reign at the General Assembly, North Carolina Democrats actually mandated that the state publish periodic tax expenditure reports – something that it still does. Faricy says that other states have taken similar action.
The bottom line: American conservatives have long complained about “runaway government spending.” If they’re really serious about that rhetoric and not just about using it as a prop to advantage the comfortable at the expense of the middle class and the poor, tax expenditures ought to be an area of potentially important common ground with progressives.
Unfortunately, in an era in which phony props and empty rhetoric are the stock-in-trade of both the president and his chief allies in Congress, we won’t be holding our breath.