Monday, July 18, 2011

“Cutting Spending in the Tax Code” and “Tax Expenditures”.

Milton Friedman’s fourth category of spending is basically: other people [politicos through the mechanism of government] spending other peoples’ money [taxpayers] on other people [recipient class]. An implicit and explicit assumption is that “other peoples’ money” was produced privately, temporarily owned privately, then transferred to state from private hands via tax. That is, the public sector only exists due to a transfer payment [tax] from the private sector.

What if a certain subset of politicos have an alternate view of “other peoples’ money”, in that, the money was never owned privately? Making this change in assumptions, the fourth category of spending becomes: other people [politicos] spending the state’s money [state owned] on other people [recipient class].

How could the money be viewed as never being owned privately? One must consider the following politico talking points: “cutting spending in the tax code” and “tax expenditures”. These talking points have been used extensively in the recent overall debt ceiling debate/spending debate. The two talking points are referring to tax deductions/tax preference items of one sort or another, which in essence are being referred to as a form of “spending/expenditures”.

Cutting spending in the tax code aka tax expenditures comes from the point of view that leaving certain sums of money in private hands, via the tax code, is an “expenditure” of the state’s money. The implicit assumption is that the money was the state’s money to begin with and the state is spending its money upon a recipient. Stated alternatively, the state is giving back something it had ownership of in the beginning.

Consider this point: “cutting spending in the tax code” and “tax expenditures”, viewed as the state spending its money upon a recipient, would then mean all monies were the state’s to begin with and whatever the state deems necessary for the recipient to posses is then determined by the tax code. That is to say, the money remaining for James and Jane Goodfellow is not determined as a transfer from the private sector to the public sector, rather the Goodfellow’ allowable remainder money is a transfer from the public sector [ownership sector] to the private sector [recipient sector].

1 comment:

  1. The very nature of income taxes imply the state has a prior claim to your total earnings, so we shouldn't expect any different coming from them. Whether we pay 5% or 50%, they ultimately decide. So another way of looking at things is that "I don't pay 25% in income taxes, they let me keep 75% of every paycheck."