Are Tax Breaks a Good Thing?

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April 2, 2012

Which costs the federal government more: a $2,100 check from Uncle Sam or a tax break worth $2,100?

Jeanne Sahadi for CNN Money begins her article about the national government’s “hidden” spending by asking this question. In reality, $2,100 is the same cost for both, but the tax break does not count towards the federal budget. Fiscal experts are troubled by these tax breaks because they could end up causing the government to lose billions of dollars. The government, however, uses these breaks as ways to get certain goals accomplished without spending “physical” money. Sahadi provides two examples:

Congress wants to foster homeownership, so it lets homeowners deduct their mortgage interest. Lawmakers want to reduce greenhouse gas emissions, so they offer a tax credit to companies that produce biofuels such as ethanol or biodiesel.

 

If these tax breaks were considered government spending, a major topic of discussion for politicians and presidential candidates, then the government’s spending as GDP would be much higher. According to Sahadi, other unreported expenditures and fees help the government maintain a lower percentage of GDP spending. The article states that, “In all, if they were also recategorized in the budget, government spending in 2007 would have to be reported as 25.4% of GDP — or a nearly a third more than advertised.”

Reevaluating the tax code would allow policymakers to see how much the government actually spends. Donald Marron, director of the Tax Policy Center, asserts that limiting tax cuts would increase the revenue of the federal government, hopefully bringing in billions of dollars. Nonetheless, a debate on the tax breaks must occur because many passed breaks go unevaluated after their acceptance. Marron states, “hidden spending should get the same scrutiny — and inspire the same enthusiasm for cuts — as the spending on entitlements, domestic programs, and defense that is targeted by today’s fiscal hawks.”

Teachers can use this article to discuss tax breaks and the many different types that exist. Possible areas to investigate: environment, industry, real estate, nongovernmental organizations (NGOs), etc. A possible activity is to research the presidential candidates tax plans and see the different areas in which they propose tax breaks. Students could discuss whether or not these breaks would be popular if citizens had to pay for them outright.

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