Outside of entitlements and defense, the biggest category of federal government expenditure — roughly $1 trillion a year — is all but invisible to the public. This stealth category doesn’t show up as a line item in the budget. Congress doesn’t debate it or vote on it. The news media rarely report on it. Yet it is driving the country to fiscal ruin.
I’m talking about tax expenditures — credits and deductions for which some taxpayers qualify but others do not. Certain tax expenditures benefit millions of people, such as the child credit, the mortgage deduction, and the health care exclusion. Others target a narrow group of beneficiaries like redevelopers of historic properties. But in the estimation of Martin S. Feldstein, former advisor to President Reagan and now a Harvard economist, they are the functional equivalent of government spending. As he says in a newly published paper, “Tax expenditures are features of the tax code that reduce tax revenue in order to achieve effects that might otherwise be done by explicit outlays.”
