Targeted “Tax Cuts”
Donald Trump claims that ending taxes on overtime pay is part of his plan for “additional tax cuts.”
IN FACT, giving targeted “tax cuts” to specific people raises the effective tax burden on others. Regardless of whether spending is cut (which almost never happens), other people end up paying a disproportionate share of taxes, either directly or through government debt, which is a stealth form of taxation.
Such narrow “tax cuts” lack and can even undercut the economic benefits of broad-based tax cuts and are functionally equivalent to welfare. In the words of Donald B. Marron, director of the Tax Policy Center and former acting director of the Congressional Budget Office:
“A great deal of government spending is hidden in the federal tax code in the form of deductions, credits, and other preferences” that “seem like they let taxpayers keep their own money, but are actually spending in disguise.”
For example, if the government were to repeal the child tax credit and instead send checks to households with children, the result would be exactly the same.
Likewise, the U.S. Energy Information Administration notes:
“Tax expenditures are reductions in government revenues resulting from preferential tax treatment for particular taxpayers. They are termed ‘tax expenditures’ because” they “are functionally equivalent to direct expenditure programs.”
To curtail this crafty form of government spending, the 1986 Reagan tax cuts repealed many tax preferences while broadly reducing marginal tax rates. Contrary to claims that this was a “giveaway to the rich,” the effective federal tax rate for the top 20% of income earners slightly rose, while the rates for all other income groups stayed about the same or lower.
Since then, various congresses and presidents have enacted more than 150 tax preferences, stealthily increasing the size of government while claiming that they are enacting “tax cuts.”
