Truth in Government: Beyond the Tax Expenditure Budget

Abstract

The tax expenditure budget recently has come under renewed attack. Some argue that its conceptual and implementational flaws justify discontinuing its publication. This paper points out the generality of these supposedly "fatal" flaws: all the sources of information we have about government spending suffer from problems similar if not identical to those identified in the tax expenditure budget. Take, for example, the absence of an agreed-upon baseline of a "normal" tax system against which to measure "tax expenditures." A central theme of the paper is that the same baseline problem exists for several clear substitutes for tax expenditures, regulation and the non-enforcement of across-the-board rules. Even the seemingly obvious baseline of zero expenditures for determining the amount of cash subsidies can be challenged as incompletely theorized and misleading. The breadth and depth of the baseline and other problems identified in the tax expenditure budget throw into question the wisdom of excoriating it in particular. If improving the utility of information distributed about the direction and function of government is the desired end, the paper contends, one must focus on the interaction between the various information sources rather than the merits or demerits of any particular source of information. And once we do that, the argument continues, it becomes clear that the better path involves the publication of more, rather than less, information. In particular, the paper contends that it would be helpful to publish an admittedly flawed regulatory budget to serve as a companion to the tax expenditure budget.

Keywords: government spending, regulation