With April 15 upon us, I'd like to talk about taxes. Not about the part of the tax code that generates revenues. You've already heard enough about the taxes you pay to last a lifetime, and the election campaign has just begun. Instead, I'll focus on the less visited topic of the taxes we don't pay, the part of the tax code that reduces revenues.
Budget officials call these tax expenditures. The rest of us call them tax breaks. They play the same role in government balance sheets as derivatives play in corporate balance sheets. They hide risks and cover up potential losses and deficits. In 2006, the Treasury Department identified over $900 billion in tax expenditures, about equal to all discretionary spending by the federal government that year. Put another way, we lose almost as much money from federal tax breaks each year as we generate in federal income taxes.
