Washington’s Enron-style Accounting

Great post by James Pethokoukis of AEI.

"The key to accounting legerdemain, whether you’re running a business or a government, is keeping the bad stuff off the books. AEI’s Andrew Biggs notes the following:

On paper, the Congressional Budget Office reports that in 2010, the federal government spent $3.456 trillion, an amount that is equal to 23.8 percent of gross domestic product. That’s one-quarter higher than the historical norm of around 19 percent of GDP.

But direct spending isn’t the only spending Washington does. As Lori Montgomery reports in the Washington Post, last year the federal government spent an additional $1.08 trillion on tax expenditures, which are tax breaks that for all intents and purposes are spending. … That $1.08 trillion in tax expenditures is 24 percent of all federal spending, and is all off the books, allowing a much bigger government than official statistics tell—and much bigger than people might be willing to tolerate if they knew.

Moreover, according to the Congressional Research Service, tax expenditures have grown by about 24 percent relative to the size of the economy since 1974, from 5.8 percent of GDP to 7.2 percent. So not only do tax expenditures add to overall government spending, they’re adding more today than they did 37 years ago.

People, this is why you can’t simply put a hard cap on spending without also cutting tax expenditures. If you only do the former, Congress will start hiding spending in the tax code."