Economists James Buchanan and Richard Wagner’s Democracy in Deficit made a simple but unsettling claim: Modern democracies run chronic deficits not because voters are irrational, but because political institutions systematically hide the true cost of government.
Not a fan of listing ‘forgone revenue as govt outlays’. Moreover, if the goal is to simplify tax code, reduce corruptive nature of deductions, exemptions, etc, reduce evasions(which a simplified tax code will do), and make it easier to forecast revenue, why even bother with the personal deductions on income taxes? This exception is likely to only add justifications for other exemptions, deductions, etc, or to increase it to win over voters.
I think you have fundamentally misinterpreted the Public Choice thinking on Tax Expenditure Theory. When first proposed by LBJ’s Assistant Secretary for Tax Policy (Harvard Law Professor Stanley Surrey) it was purported to be an objective way to understand the other side of the balance sheet. If carried to its logical extreme Surrey was arguing that all income is created by the government.
But Buchanan, Wagner and Brennan (Co-Author of the Power To Tax 1969) saw taxation as inherently coercive and subject to the whims of politicians and bureaucrats. Thus all three argued for constitutional limits on the power to tax. Buchanan saw tax expenditure theory as analytically sloppy, politically biased towards larger government and normatively loaded. Where he (partially) agreed with tax expenditure theory was in the negative effects of special interest carve outs,
I appreciate this thoughtful feedback. I hope this short piece didn't convey a misinterpretation of PCT on taxation. Buchanan, Brennan, and Wagner rightly criticized Surrey's approach as analytically slippery and normatively loaded, particularly insofar as it blurred the coercive nature of taxation and implicitly framed all income as state-created.
The argument I am making here is narrower and procedural. It does not depend on a comprehensive tax baseline or on treating all foregone revenue as government outlays. Rather, it focuses on how political institutions exploit the tax code to deliver targeted benefits in ways that obscure costs, evade scrutiny, and weaken democratic accountability. In that limited but important sense, tax expenditures matter not because all untaxed income is spending, but because selectively structured tax rules are an especially effective vehicle for fiscal illusion.
"My own preference—and the thrust of much of my work on tax expenditures—is for a far simpler tax system altogether: a broad tax base that does not penalize saving or investment, with few preferences beyond a personal deduction and limited provisions to avoid double taxation of saving. In a world like that, the problem of tax expenditures largely disappears."
This sounds like a progressive personal consumption tax. [The personal deduction woud just be the zero rate band.] And eliminating business taxes WOULD, blessedly, eliminate a whole field of sepcial treatment.
I could not be a bigger fan, but postlapsarian human nature being what it is, we shoud not expect perection, either. Congress can still declre that expenditures on X are not "consumption" nd those can be just as opaque and easily gamed as income tax exemptions.
Not a fan of listing ‘forgone revenue as govt outlays’. Moreover, if the goal is to simplify tax code, reduce corruptive nature of deductions, exemptions, etc, reduce evasions(which a simplified tax code will do), and make it easier to forecast revenue, why even bother with the personal deductions on income taxes? This exception is likely to only add justifications for other exemptions, deductions, etc, or to increase it to win over voters.
I think you have fundamentally misinterpreted the Public Choice thinking on Tax Expenditure Theory. When first proposed by LBJ’s Assistant Secretary for Tax Policy (Harvard Law Professor Stanley Surrey) it was purported to be an objective way to understand the other side of the balance sheet. If carried to its logical extreme Surrey was arguing that all income is created by the government.
But Buchanan, Wagner and Brennan (Co-Author of the Power To Tax 1969) saw taxation as inherently coercive and subject to the whims of politicians and bureaucrats. Thus all three argued for constitutional limits on the power to tax. Buchanan saw tax expenditure theory as analytically sloppy, politically biased towards larger government and normatively loaded. Where he (partially) agreed with tax expenditure theory was in the negative effects of special interest carve outs,
Thanks for the response. When I was writing my dissertation I was intrigued with the Hall-Rabushka model. I am a big fan of the Mercatus’ work.
I appreciate this thoughtful feedback. I hope this short piece didn't convey a misinterpretation of PCT on taxation. Buchanan, Brennan, and Wagner rightly criticized Surrey's approach as analytically slippery and normatively loaded, particularly insofar as it blurred the coercive nature of taxation and implicitly framed all income as state-created.
The argument I am making here is narrower and procedural. It does not depend on a comprehensive tax baseline or on treating all foregone revenue as government outlays. Rather, it focuses on how political institutions exploit the tax code to deliver targeted benefits in ways that obscure costs, evade scrutiny, and weaken democratic accountability. In that limited but important sense, tax expenditures matter not because all untaxed income is spending, but because selectively structured tax rules are an especially effective vehicle for fiscal illusion.
I've written more about tax expenditures and moving towards a different definition (Hall-Rabushka model) of the tax base here: https://www.mercatus.org/research/policy-briefs/introduction-principled-approach-tax-expenditures
"My own preference—and the thrust of much of my work on tax expenditures—is for a far simpler tax system altogether: a broad tax base that does not penalize saving or investment, with few preferences beyond a personal deduction and limited provisions to avoid double taxation of saving. In a world like that, the problem of tax expenditures largely disappears."
This sounds like a progressive personal consumption tax. [The personal deduction woud just be the zero rate band.] And eliminating business taxes WOULD, blessedly, eliminate a whole field of sepcial treatment.
I could not be a bigger fan, but postlapsarian human nature being what it is, we shoud not expect perection, either. Congress can still declre that expenditures on X are not "consumption" nd those can be just as opaque and easily gamed as income tax exemptions.