Tax expenditure discussion in the Ryan budget plan

Not to have tunnel vision here given the various other issues presented, but I am pleased to note that the House Republicans' 2012 budget proposal is highly favorable to tax expenditure analysis.

Herewith the key discussion:

"The negative effects of high rates on work, savings and investment are compounded when a large mix of exemptions, deductions and credits are added in. Sometimes referred to as 'tax expenditures,' these distortions are similar to government spending – instead of markets directing economic resources to their most efficient uses, the government directs resources to politically favored uses, creating a drag on growth.

"The key difference is that, with spending, the government collects the money first in the form of taxes from those who earned it, and reallocates the money elsewhere. With tax expenditures, government agrees not to collect the money as long as it is put to a government-approved use. Other tax expenditures literally do take the form of spending through the tax code, because they 'return' more money than the taxes owed.

"Tax expenditures have a huge impact on the federal budget, resulting in over $1 trillion in forgone revenue each year (although the exact definition of a 'tax expenditure' is subject to debate.) To put that number in perspective, $1 trillion is roughly the total amount the government collects each year in federal income taxes.

"Eliminating large tax expenditures would not be for the purpose of increasing total tax revenues. Instead, when offset by lower rates, it would have a doubly positive impact on the economy – it would stop diverting economic resources to less productive uses, while making possible the lower tax rates that provide greater incentives for economic growth."

A cynic might note that the above analysis will earn no "profiles in courage" award. No less than President Obama when praising 1986-style tax reform on the individual side, the Republicans assiduously avoid naming even a single provision - although the revenue numbers make unmistakable the intended reference to home mortgage interest deductions and the employer-provided health insurance exclusion.

Also, the discussion formally adheres to the Norquist rule that tax revenues, as officially computed, can never rise, given the accompanying rate cuts.

But it presents the base-broadening and rate cuts as two distinct sets of changes, each to be endorsed on its independent merits. And it offers no indication that the "key difference" it cites between direct spending and tax expenditures has any policy relevance whatsoever. It is therefore effectively a straight-out endorsement both of tax expenditure analysis as the right intellectual framework, and of tax expenditure repeal in the context of addressing the fiscal gap.