David Brooks decides that all tax breaks and government spending are created equal, with deeply dubious results:
We Americans cherish our myths. One myth is that there is more social mobility in the United States than in Europe. That’s false. Another myth is that the government is smaller here than in Europe. That’s largely false, too.
The U.S. does not have a significantly smaller welfare state than the European nations. We’re just better at hiding it. The Europeans provide welfare provisions through direct government payments. We do it through the back door via tax breaks.
For example, in Europe, governments offer health care directly. In the U.S., we give employers a gigantic tax exemption to do the same thing. European governments offer public childcare. In the U.S., we have child tax credits. In Europe, governments subsidize favored industries. We do the same thing by providing special tax deductions and exemptions for everybody from ethanol producers to Nascar track owners.
These tax expenditures are hidden but huge. Budget experts Donald Marron and Eric Toder added up all the spending-like tax preferences and found that, in 2007, they amounted to $600 billion. If you had included those preferences as government spending, then the federal government would have actually been one-fifth larger than it appeared.
You might say that a tax break isn’t the same as a spending program. You would be wrong.
David Bradford, a Princeton economist, has the best illustration of how the system works. Suppose the Pentagon wanted to buy a new fighter plane. But instead of writing a $10 billion check to the manufacturer, the government just issued a $10 billion “weapons supply tax credit.” The plane would still get made. The company would get its money through the tax credit. And politicians would get to brag that they had cut taxes and reduced the size of government!
Well, that certainly proves that some tax breaks can be made to resemble some direct spending.
But consider a spectrum of policies. In case 1, the government gives me a $1,000 tax child care credit; I am free to spend this on an X-box, a vacation, or on any of a number of privately run daycare centers.
In case 2, the government gives me a voucher for $1,000 redeemable at any day care center. Good-bye X-box!
And in case 3, the government keeps the $1,000, builds a day care center, hires staff, and waits for me to drive up to drop off the munchkins.
Would Mr. Brooks really argue that all three are equal manifestations of an intrusive "Big Government", all re-shaping the economy equally? His math says they are equal, but who believes that?
Well. His basic plea for tax simplification will fall on deaf ears - both parties seem to be hooked on it, and IMHO it can only happen in an environment of revenue cutting, not revenue raising. Nostalgia buffs may recall that I rehashed this back when Mr. Brooks was fantasizing about an Obama plea for tax simplification back in December 2010.