In any honest debate over the budget, two separate forms of spending needs to be recognized: direct spending by the government on goods, services and transfers and indirect spending consisting of forgone revenues due to private economic decisions. These tax expenditures (home mortgage interest deduction, employer provided health care deduction, retirement accounts) amount to over $1.3 trillion per year. In other words, Republicans could eliminate the deficit without raising one tax or cutting one penny of spending by addressing redistribution based on personal choice.
Whether these transfers are just is a subject for a different post, but two states seem to be on the right track when it comes to spending and government efficiency: Texas and Massachusetts. The Texas Sunset Commission examines every agency every ten years and recommends whether that agency be continued, reformed or eliminated --- saving taxpayers hundreds of millions of dollars since its inception. The most important aspect of this law is that state agencies in Texas are only authorized for ten years (not in perpetuity), so if no action is taken, then the agency is eliminated. Massachusetts is in the process of implementing a system for the other kind of spending, by implementing recommendations from the Massachusetts Tax Expenditure Commission.
Much like the Texas Sunset Commission targets inefficient spending, Massachusetts is targeting tax breaks and economic incentives that do not meet return targets. In addition, like Texas law, Massachusetts will be required to affirmatively vote to extend tax expenditures, instead of enshrining them for perpetuity. If Republicans really are for fiscal discipline, they need to acknowledge that $1 of government spending is equal to $1 dollar that is lost due to a bogus tax credit, inefficient incentive or uncollected tax penalty.
