Tax Expenditures Reform: Reducing Deficits while Improving Efficiency and Equity of the Tax Code

Congress spends $1.1 trillion per year on “tax expenditures”—spending that is delivered through the tax code rather than through government programs

April 15, 2011
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Introduction: This report by the Center on Budget and Policy Priorities, a non-profit fiscal policy organization, explains how tax expenditures are not only hidden in the budget, but also disproportionately benefits wealthier households.

An excerpt from the report: For maximum efficiency, tax expenditures should provide the greatest benefit to taxpayers who are either more responsive to the incentive the tax expenditure provides or whose engagement in the desired activity would generate the greatest social good. But approximately 70 percent of the amount spent each year on individual tax expenditures is provided through tax deductions, exemptions, or exclusions, the value of which rises as household income increases — the higher one’s tax bracket, the greater the tax benefit for each dollar deducted, exempted, or excluded. As a result, the wealthiest households often receive the largest tax subsidies, while the benefits to middle-class families are considerably smaller and many of the most vulnerable families are left out entirely. This structure generally reduces both the efficiency and the fairness of these tax incentives.

Read the full report.

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