False Premise

Reuters talked about a CBO study commissioned by Congressman Chris Van Hollen (D, MD) that purported to look at tax deductions in our tax code.

The top 10 tax deductions, credits, and exclusions will keep $12 trillion out of federal government coffers over the next decade, and several of them mainly benefit the wealthiest Americans….

Never mind that the claim proceeds from a couple of false premises, as I’ve beefed about before.  For one thing, it’s not the government’s money, so of course it doesn’t “keep $12 trillion out of federal government coffers.”  Such a claim presumes that the money belongs in the federal government’s coffers.

For another, even were the money in some sense due the government, the government’s need for the money hasn’t been established, and so any discussion of monies “lost” is…premature…at best.

James Taranto, writing for The Wall Street Journal, had additional problems with the study.

[W]hat makes the CBO study misleading is not the frame but the anchor.  The CBO uses the Joint Committee on Taxation’s definition of “tax expenditures” as “deviations from an individual income tax structure that incorporates the existing regular tax rates, standard deduction, personal exemptions, and deduction of business expenses.”  But as a practical matter, many of these “deviations” are integral to our tax system.


[T]he JCT/CBO definition of the tax “structure”—the anchor that holds in place all the study’s assumptions—is arbitrary.  Two examples will suffice to make the point.

The two tax credits in the CBO list—the EITC and the child tax credit—differ from the exclusions, deductions and differential rates in that they are available only to taxpayers with relatively low incomes.  Indeed they are available to “taxpayers” who don’t pay taxes, which is to say that in some cases they can result in a negative tax liability—an actual subsidy, as that word is commonly understood.

Thanks to those credits, taxpayers at the lower end of the income scale get some benefit from “tax expenditures.”  But other redistributionist programs like food stamps, Medicaid, and Supplemental Security Income are left out of the CBO’s analysis merely because they are not administered through the income-tax system.

The CBO’s study also is a typically static study that, from the assumptions dictated to the CBO by Van Hollen for this one, cynically ignore, among other things, how the people being taxed and the economy in generally will react to changes in these “tax deductions, credits and exclusions.”

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