Skip to main content

3 ways to relieve our tax hangovers

By Edward D. Kleinbard, Special to CNN
updated 2:53 PM EDT, Mon April 22, 2013
STORY HIGHLIGHTS
  • Edward Kleinbard: Tax day is over, but many Americans are still suffering from tax hangovers
  • Kleinbard: Why do we feel tax pain when our tax burdens are so low?
  • He says there are three reasons, including the corrosive effect of "tax expenditures"
  • Kleinbard: One way to lessen pain is to re-examine tax expenditures in our tax code

Editor's note: Edward D. Kleinbard is a professor at Gould School of Law at the University of Southern California and fellow at the Century Foundation. He is the former chief of staff of Congress's Joint Committee on Taxation.

(CNN) -- Tax day may be over, but many Americans are still suffering from tax hangovers.

If it's any consolation, here's our country's best-kept fiscal secret: According to the Organization for Economic Co-operation and Development, Americans in 2012 enjoyed the lowest tax burdens as a share of our national economy of any developed country in the world.

How can it be that we feel so much tax pain, but compared to other developed countries our tax burdens are so low?

Edward D. Kleinbard
Edward D. Kleinbard

There are three reasons.

The first is the corrosive effect of "tax expenditures": government spending programs baked into the tax code, and therefore visible only as reduced tax collections. These hidden spending programs range from subsidies for home ownership to government investments in alternative energy development, and touch virtually every corner of our economy and private consumption decisions.

Become a fan of CNNOpinion
Stay up to date on the latest opinion, analysis and conversations through social media. Join us at Facebook/CNNOpinion and follow us @CNNOpinion on Twitter. We welcome your ideas and comments.



Tax expenditures distort our official data by reducing government tax revenues in the official scorekeeping, rather than being recorded in a manner consistent with their substance, as additional tax collections offset by government spending programs.

The United States actually spends roughly as much through tax expenditures as it collects in nominal personal income tax revenues. Our official personal income tax collections are in the range of $1.2 trillion/year, but our tax rate structure operates as if we collected more than $2 trillion in income tax, and then ran additional government spending programs that cost more than $1 trillion/year.

Tax expenditures raise your effective tax burden if you are not the beneficiary of any of this hidden government largesse, and reduce your tax burden if you are on the receiving end. Imagine that there are 10 of us in a little country, and we each pay $100 in tax. The government has $1,000 to spend, and you and I each feel $100 of tax pain. Now the government decides to give me a tax credit of $100, so net I have no out of pocket tax bill. But the government also decides to keep things revenue neutral, and so raises taxes on the remaining nine of you to $111.11, which raises $999.99 (forgive the rounding error) for the government to spend.

When you now look at total "tax revenues," the government is the same size in the second case as in the first. But you are now paying $111.11 in tax, and therefore feel $11.11 more in tax pain. Those who are net losers (you and the other eight remaining taxpayers, in this example) actually are right to swear that your tax bills seem larger, even if total government collections remain unchanged.

Our country stands out from its peers as a tax expenditure junkie. Our addiction means that official data understate the size of government, and citizens do not have a clear picture of what spending programs we actually are financing. In turn, the design of many tax expenditures could not possibly pass Congress if presented as explicit spending legislation.

Who, for example, would vote for a home ownership cash subsidy program that subsidizes affluent Americans at a more generous level than it does the middle class? Yet that is the effect of the home mortgage interest deduction, because the same tax deduction is more valuable the higher your tax bracket is.

So to this extent, our tax pain is real, and it is some of the invisible spending programs we fund in this manner that need re-examination.

The second reason for our low threshold of tax pain lies deeper: We have allowed our fiscal debates to be framed in a way that highlights only the pain of opening our wallets. We can see this backward framing of the issues, for example, in the debate over sequestration, where it is claimed that because taxes cannot rise further, spending must be cut -- without any examination of what purpose that government spending serves. By ignoring the uses to which tax revenues are put, these debates implicitly deprecate the very purpose of government.

When you set out to buy a house, you think carefully about how big a house you can afford, but in the end you are not poorer for the money you spent, because you acquired something useful, namely, a new home. Why then in fiscal debates do we look only at the cost of government, and not at the collective goods or services we thereby acquire?

Unsurprisingly, once we phrase tax policy as a collective exercise in fiscal masochism, our threshold for tax pain turns out to be very low.

The third reason for our low tolerance for tax pain is that the federal government in particular collects its showpiece tax -- the personal income tax -- in the most painful way possible, by asking each of us to assess the tax against ourselves. For most Americans, that means starting from a blank form and a shoebox full of miscellaneous pieces of financial data.

Self-assessment is probably unavoidable, but the pain can be mitigated if the IRS were to send taxpayers a "prepopulated" tax return that reflects the data already furnished to the IRS. (Imagine, for example, receiving a partially filled-out tax Form 1040 in which all the information concerning your investment income contained in the 1099's thrown into your shoebox had already been entered for you on the appropriate lines.) Programs like this are feasible (and even exist in California and other countries), but have been blocked in the United States in part through the vigorous lobbying of tax preparation companies anxious to protect their franchises. Here, the tax pain is the result of legislative sausage making at its most venal.

Tax time will never be pleasant, but making form preparation easier, understanding better how government spending buys useful goods and services, and re-examining the tax expenditures in our tax code at least can mitigate our tax pain.

Follow us on Twitter @CNNOpinion

Join us on Facebook/CNNOpinion

The opinions expressed in this commentary are solely those of Edward D. Kleinbard.

ADVERTISEMENT
Part of complete coverage on
updated 8:59 AM EDT, Mon September 22, 2014
You could be forgiven for thinking no one cares -- or even should care, right now -- about climate change, writes CNN's John Sutter. But you'd be mistaken.
updated 5:32 PM EDT, Sun September 21, 2014
David Gergen says the White House's war against ISIS is getting off to a rough start and needs to be set right
updated 9:00 AM EDT, Mon September 22, 2014
John Sutter boarded a leaky oyster boat in Connecticut with a captain who can't swim as he set off to get world leaders to act on climate change
updated 3:17 PM EDT, Mon September 22, 2014
Ruben Navarrette says making rude use of the Mexican flag on Mexican independence day in a concert in Mexico was extremely tasteless, but not an international incident.
updated 9:59 AM EDT, Mon September 22, 2014
Michael Dunn is going to stand trial again after a jury was unable to reach a verdict; Mark O'Mara hopes for a fair trial.
updated 7:15 PM EDT, Mon September 22, 2014
Is ballet dying? CNN spoke with Isabella Boylston, a principal dancer at the American Ballet Theatre, about the future of the art form.
updated 5:47 PM EDT, Fri September 19, 2014
Sally Kohn says it's time we take climate change as seriously as we do warfare in the Middle East
updated 3:27 PM EDT, Mon September 22, 2014
Laurence Steinberg says the high obesity rate among young children is worrisome for a host of reasons
updated 9:02 AM EDT, Fri September 19, 2014
Dean Obeidallah says an Oklahoma state representative's hateful remarks were rightfully condemned by religious leaders..
updated 3:22 PM EDT, Fri September 19, 2014
No matter how much planning has gone into U.S. military plans to counter the Islamic State in Iraq and Syria, the Arab public isn't convinced that anything will change, says Geneive Abdo
updated 11:44 AM EDT, Fri September 19, 2014
President Obama's strategy for destroying ISIS seems to depend on a volley of air strikes. That won't be enough, says Haider Mullick.
updated 9:03 AM EDT, Fri September 19, 2014
Paul Begala says Hillary Clinton has plenty of good reasons not to jump into the 2016 race now
updated 11:01 AM EDT, Fri September 19, 2014
Scotland decided to trust its 16-year-olds to vote in the biggest question in its history. Americans, in contrast, don't even trust theirs to help pick the county sheriff. Who's right?
updated 9:57 PM EDT, Thu September 18, 2014
Ruben Navarrette says spanking is an acceptable form of disciplining a child, as long as you follow the rules.
updated 11:47 AM EDT, Fri September 19, 2014
Frida Ghitis says the foiled Australian plot shows ISIS is working diligently to taunt the U.S. and its allies.
updated 3:58 PM EDT, Fri September 19, 2014
Young U.S. voters by and large just do not see the midterm elections offering legitimate choices because, in their eyes, Congress has proven to be largely ineffectual, and worse uncaring, argues John Della Volpe
updated 9:58 PM EDT, Thu September 18, 2014
Steven Holmes says spanking, a practice that is ingrained in our culture, accomplishes nothing positive and causes harm.
updated 2:31 PM EDT, Thu September 18, 2014
Sally Kohn says America tried "Cowboy Adventurism" as a foreign policy strategy; it failed. So why try it again?
updated 10:27 AM EDT, Thu September 18, 2014
Van Jones says the video of John Crawford III, who was shot by a police officer in Walmart, should be released.
updated 10:48 AM EDT, Thu September 18, 2014
NASA will need to embrace new entrants and promote a lot more competition in future, argues Newt Gingrich.
updated 7:15 PM EDT, Tue September 16, 2014
If U.S. wants to see real change in Iraq and Syria, it will have to empower moderate forces, says Fouad Siniora.
updated 8:34 PM EDT, Wed September 17, 2014
Mark O'Mara says there are basic rules to follow when interacting with law enforcement: respect their authority.
updated 9:05 AM EDT, Tue September 16, 2014
LZ Granderson says Congress has rebuked the NFL on domestic violence issue, but why not a federal judge?
updated 7:49 AM EDT, Tue September 16, 2014
Mel Robbins says the only person you can legally hit in the United States is a child. That's wrong.
updated 1:23 PM EDT, Mon September 15, 2014
Eric Liu says seeing many friends fight so hard for same-sex marriage rights made him appreciate marriage.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT