This morning, on “The Diane Rehm Show,” EPI’s Larry Mishel made a good point: The Republicans argue that increasing taxes by a dollar hurts the economy while cutting spending by a dollar helps the recovery, he said. That means they believe that taking a dollar out of a rich person’s pocket through taxes hurts demand while taking it out of a poor person’s pocket by cutting unemployment insurance doesn’t. He suggested there’s not a whole lot of evidence to support this claim.
But remember that Republicans also say that cutting tax expenditures counts as a tax increase. That implies that cutting a $1 billion subsidy for low-income housing will help the recovery while shaving $1 billion off of a tax break that subsidizes low-income housing purchases would impede the recovery. Can anyone defend that claim? Would anyone even like to try?
The line between taxes and spending is simply not as bright as some like to claim. This morning, economist Greg Mankiw put it forthrightly: “It is just as important to focus on stealth spending implemented through the tax code as on explicit spending,” he wrote.
But one difference between the two pots of money is that non-defense discretionary spending tends to be skewed quite progressively while tax expenditures are often quite regressive. If you focus only on domestic spending, then, your cuts fall more heavily on low-income Americans than if you also focus on tax expenditures.