Our current fiscal language, which rests on the basic concepts of “taxes” and “spending” plus their arithmetical comparison to determine the annual budget deficit or surplus, has served us poorly. The most obvious and well-known problem is the shortsightedness of an annual budget measure. This one came home to roost most disastrously in 2001, when four years of budget surpluses encouraged the collapse of fiscal discipline.

The problems with the terms “taxes” and “spending” may be even more serious, although less widely recognized. Mistakenly using them as if they had economic substance has yielded two distinct kinds of harm. First, it has deformed policy in a number of realms, ranging from a thumb on the scale in favor of using tax expenditures to the creation of welfare policies with harsh poverty traps that no one really wants.

Second, illusions concerning the economic significance of taxes and spending as categories have helped to raise the risk of government default, by encouraging antigovernment conservatives to follow a “starve the beast” strategy of continually cutting taxes in the face of an enormous fiscal gap.