Taxes, Bonds, and Infrastructure Spending

Matt Yglesias has a medium-size post about the drawbacks of financing infrastructure through tax exemptions, specifically through exempting certain bond interest income from taxation.  His point is two-fold.  As I’ve mentioned before, it’s right to think about tax credits (and cuts) as government expenditures, but our supply side habitus doesn’t see it like that.  So we get a lot of financing through complicated tax statutes instead of simpler tax codes.  (When people lament our complicated tax structure, this is basically why.  Ironically, supply siders have created the crazy tax structure they hate.)    Second, financing expenditures through tax-exempt bonds generates less savings than the government gives up in tax revenue, according to this report from the crazy Communist CBO.  Because of the inefficiency, the tax credit is basically a subsidy to anyone buying the bond, which means it’s generally a subsidy to well-informed (wealthy) individuals.

Money quote:

But the tendency is for conservatives and centrists to treat “tax cuts” as good and “spending” as bad, thus putting a big thumb on the scales in favor of using tax expenditures rather than spending.