The Blur Between Spending and Taxes

In this article ,N Gregory Mankiw ( author of our very own macro econ book) argues that instead of haggling over what kind of fiscal policy needs to be employed to counter the deficit, it is better to reform the tax code. He states that there are traditionally two ways in which we can reduce the deficit; either cut government spending or raise taxes . However what we don't realize is that our tax code is full of tax credits which are actually "tax expenditures" or another disguised form of government spending.The tax code is full of tax expenditures like 'credit for hunting snipes",(made up example)and it is estimated that if we got rid of all of these we will save 1 trillion dollars a year. This is not a crazy idea. In fact, the chairmen of president Obama's commission on deficit reduction proposed this idea in their draft proposal. This approach will be equitable since tax expenditures enrich people's after tax income in the bottom quintile by 6 percent, but the people in the top 1% of income distribution receive twice that gain. This plan will also reduce tax rates, but it will widen the tax base, ultimately earning more revenue for the government but ensuring that the new tax laws are equitable.