What the Tea Party Gets Wrong
Suppose the government wants, for some reason, to subsidize biofuels. There are at least three different ways to do it:
1. For every gallon of biofuel produced, the government will pay the producer a one dollar subsidy.
2. For every gallon of biofuel produced, the government gives the producer a one dollar tax credit.
3. Make a regulatory rule that forces people to use more biofuels, such as a requirement that gasoline can only be sold if combined with at least ten percent biofuel.
The first two differ only in labeling. They have the same effect on the federal budget. They provide the same amount of subsidy. They are both, in fact if not in form, federal expenditures. The only difference is that the second is an expenditure masquerading as a tax cut.
A lot of expenditures pretend to be tax cuts. If you look at the CBO figures for federal income tax in 2007, you discover that, on average, the bottom 40% of the income distribution not only does not pay federal income tax, it is paid federal income tax—a federal welfare program in the form of tax credits. And since these are 2007 figures, it is Bush's federal welfare program, not Obama's.
As best I can tell by news stories dealing with recent budget controversies, this simple point has somehow been missed by the Tea Party Republicans. They insist on taking such expenditures at face value, as tax cuts rather than expenditures, hence oppose their elimination. They have thus fallen for the very simplest scam operated by their opponents in both parties, and by doing so come out against instead of for cutting federal expenditures.
The third alternative is also an expenditure, also a subsidy, should also be opposed by those who wish to reduce the role of government in the economy. But at least it uses a less obvious device, goes to more trouble to hide what it is, than number 2.