Tax Expenditures – Exactly What Are They?

May 15, 2010

Tax loopholes!

Ok, so officially, they’re not call loopholes. But in essence, that is exactly what they are. Some folks refer to them as “tax breaks”. Others call them “entitlements”. And some do call them “loopholes”. But it all amounts to the same thing, which allows people and/or corporations to get out of paying taxes and/or receive special benefits.

To get an idea of what tax expenditures are, you can read a report by the Center for American Progress called Tax Expenditures 101. Their opening:

Tax expenditures are, quite simply, spending programs implemented through the tax code. These programs give people and businesses special tax credits, deductions, exclusions, exemptions, deferrals, and preferential rates in support of various government policies.

The Citizens for Tax Justice published a report in 1996 called The Hidden Entitlements. The report is quite lengthy, but includes a lot of important details. In their overview, the following is included:

“Tax expenditures” is the official term used to describe the vast array of government spending programs that are implemented through the Internal Revenue Code ­ programs that will total $3.7 trillion over the next 7 years.

Did you get the total cost? $3.7 trillion — that’s with a “t” — over the following 7 years. And tax expenditures have only increased since then. See the charts below.

The CJT sums up their report in the conclusion:

The notion that many of the provisions of the Internal Revenue Code are really hidden spending programs may seem surprising to the uninitiated. But it’s a well-known fact to the special interest groups that lobby for the loopholes. Indeed, these interests usually prefer to get their subsidies through the tax laws–not only because the benefits are disguised, but because once enacted, they typically remain in the law as permanent entitlements.

At a time of intense, critical scrutiny on direct government programs such as aid to the poor and the elderly, it’s especially important to focus on the hundreds of billions of dollars in “hidden entitlements” buried in the tax code. Far too many of these tax subsidies amount to welfare for corporations and the rich. They often involve the government in what it usually does not do well–trying to make decisions for businesses, investors and consumers–and as a result, they harmfully distort private economic choices. Their huge cost adds to budget deficits and crowds out funds for what the government ought to be doing better–building the roads, promoting education, stopping crime, protecting the environment and so forth. And they make our tax laws much too complex.

In short, while not all “tax expenditures” are evil, many of them undermine tax fairness, impede economic growth and divert scarce tax dollars away from better uses. If we hope to “reinvent government” to make it more effective and less burdensome–in short, a better deal for ordinary American families–then scaling back wasteful and pernicious tax loopholes should be at the top of the agenda.

More recently, on April 22, 2010, the CJT offered this report. It begins with “a great deal of government ‘spending’ is done through the tax code in the form of special breaks and loopholes known as tax expenditures.” Notice they do use the word “loophole”. Their detailed report is called “Limiting Tax Expenditures Must Be a Part of Congress’s Efforts to Balance the Budget”. But any “limiting” to corporations and wealthy people will be fought to the death.

No doubt one report that will resurface is one by Republican Jim Saxton from 1999. If you read this entire report, what you will learn is that Saxton had one objective in mind in preparing the report. He confirms that with his opening paragraph, which in part reads:

The tax expenditure concept relies heavily on a normative notion that shielding certain taxpayer income from taxation deprives government of its rightful revenues.

Saxton goes on in an attempt to prove that, even offering a list of tax expenditures that are not tax expenditures at all. And all but one — IRA’s — apply to corporations and wealthy folks. Obviously Saxton expects the working class folks to pay all the taxes and all the debt.

While most Americans, both knowledgeable and uneducated, fail to grasp the consequences of our financial mess, some level headed people who live in the world of reality are trying to tell them. Yeah, sure, all those tea partiers’ who are using our national debt to advance their political cause claim they know, but the vast majority of them really don’t have any idea just what our massive debt means. And that debt can not be erased by allowing corporations and many wealthy people to continue to get their subsides, which are granted in great part under the name of tax expenditures. One of these days we’re going to be forced to wake up and listen to the likes of Ron Paul, who, by the way, is a Republican. But by the time the others get through with us and the country, it will most likely be too late.


A very good site for getting educated on taxes:


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