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In his Path to Prosperity, Republican vice presidential candidate Paul Ryan called for $40 trillion in spending over the next 10 years, $7 trillion less than President Obama called for in his 2013 budget.  What accounts for the gap? $1 trillion is from Medicaid and other health programs. Another $1.4 trillion comes from anticipated (wished for?) interest-cost savings ($4.3 trillion compared with $5.7 trillion).  So where does Ryan make his really big cuts? “Other” mandatory spending.  $631 billion was spent on these programs in 2011, though Ryan proposes paring this to only $349 billion by 2018.  Over ten years, Ryan slashes a whopping $3.5 trillion vis-à-vis Obama, targets unspecified, from this large and broad category, which includes political minefields like unemployment compensation, retirement benefits, earned income and child tax credits, food assistance, and veteran benefits.  This sounds a lot like a New Year’s pledge to cut 1,000 calories a day from the category of “meals.” Ryan: The Path to Prosperity Obama: The President's Budget for Fiscal Year 2013 CBO: A Closer Look at Mandatory Spending Elmendorf: Achieving a Sustainable Federal Budget (Video)

“Tax expenditures” are an opaque form of government spending that operates through the tax code – instead of the government making direct payments to individuals or institutions, tax credits are issued.  In total, they cost the U.S. government about $1.1 trillion annually – roughly equivalent to the country’s enormous budget deficit. Deficit reduction plans, including Paul Ryan’s Path to Prosperity and Simpson-Bowles, have proposed eliminating tax expenditures as a means of making the tax code simpler and less distortionary. Cutting tax expenditures, however, is politically challenging – in some cases perhaps impossible.  Take, for example, the imputed rental income from which homeowners benefit - that is, the estimated income they would get if they rented out their homes, while living in rental accommodations themselves. Subsidyscope estimates that not taxing this income cost the government $27 billion in FY 2009. But taxing imputed rental income would be brutally hard to sell as an elimination of a distortionary tax break. Who benefits from tax expenditures?  This varies widely by item.  As seen in the figure above, of the seven precisely measurable tax expenditures worth over $20 billion, three accrue disproportionately to households earning over $200,000 a year.  The largest such is the mortgage interest tax deduction, costing the government over $80 billion a year.  It is less a means of encouraging home ownership than a means of encouraging the well-off to borrow more than they need to buy bigger homes than they need.  American legislators should summon the courage to follow the British example and phase it out. Ryan: The GOP Budget and America's Future Video: Erskine Bowles on Deficits Subsidyscope: Pew's Tax Expenditure Database The Atlantic: Why the Mortgage Interest Tax Deduction Is Terrible