Archive for October 16th, 2015

On tax expenditures: Some additional details and a renewed caveat

October 16, 2015

By Matthew E. Milliken
Oct. 16, 2015

Author’s note: Things have been a bit disjointed this week — apologies for my erratic posting! MEM

I wanted to follow up on last week’s post about tax deductions with some additional information on the subject.

What is a tax deduction? Actually, the correct term for the concept I discussed in the previous post is tax expenditure, which can take multiple forms. Expenditures encompass deductions, exclusions, and tax credits, which can be either refundable or non-refundable. The Tax Policy Center, a group created by the Urban Institute and the Brookings Institution, has more information in this 2009 briefing.

The Government Accountability Office lists six different types of tax expenditures: exclusions, exemptions, deductions, credits, preferential tax rates and deferrals. (See figure 4 at the bottom of this page.)

• How much do tax expenditures cost the government on an annual basis? The numbers vary from year to year, but in 2014, all tax expenditures cost the U.S. government an estimated $1.4 trillion, according to a 2014 post from the Bipartisan Policy Center which drew on congressional sources.

• How does that compare with other major items in the federal budget? In 2014, according to the Government Accountability Office, the federal government’s $1.4 trillion in tax expenditures was about the same as the overall amount of federal discretionary spending. Mandatory spending is significantly larger than either category — more than $2 trillion in 2014 — and has been for the past quarter-century. (See figure 2 on the previously cited G.A.O. page.)

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