A Diamond in the Rough?

There's much to criticize in President Obama's plan to cut non-security discretionary spending by five percent (of FY 2011 levels): That by the administration's own estimate, unemployment will be more than eight percent; that discretionary spending funds many important programs like providing nutrition to vulnerable children, protecting the public from lead-tainted toys and e. coli-tainted spinach, and putting police officers on the street; that there's mountains of unnecessary spending on security programs; and that over $1 trillion in IRS-administered spending will remain under the budget radar.

However, rather than using this post to carp about this fiscally irresponsible move, because Obama is going to take a lot of (deserved) political heat for it, I think it's worth pointing out this bit from the OMB Director Orszag's memo to federal agencies:

Your [FY 2012 budget request] submission should include, where appropriate, analysis of how to better integrate key tax and spending policies with similar objectives and goals. Your staff should work with their OMB contact to develop this analysis.

This could -- could -- be the beginning stages of implementing a smarter tax policy by treating tax expenditures as the spending programs that they are.

For example, the government could write $80 billion in checks to owners of homes to take the edge of mortgage payments with the purpose of encouraging home ownership. Under today's proposal, that home ownership program might be subject to $4 billion in cuts -- a little bit less than the entire budget of the Army Corps of Engineers. However, Congress chose to implement this program through the tax code by allowing home owners to deduct certain expenses related to housing, so it exists as a phantom program equal roughly to the very visible entire discretionary budgets of the Departments of Agriculture, Interior, Justice, and Labor combined.

In other words, in a few years, when deficit hysteria strikes Washington again, maybe the $1 trillion shadow budget will also be on the table for budget cuts.

Image by Flickr user Monster Pete used under a Creative Commons license.

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