Tax Expenditures

About Tax Expenditures

Tax expenditures are revenue losses from tax deductions, credits, and exclusions. The concept was developed by Stanley Surrey in 1967. Tax expenditures function like government spending but are delivered through the tax code. The US has over 200 tax expenditures, costing approximately 1.5 trillion annually. The largest include the exclusion of employer health insurance 280 billion, preferential capital gains rates 200 billion, mortgage interest deduction 30 billion, and state and local tax deduction 30 billion. Tax expenditures are politically powerful because they appear as tax cuts rather than spending. Reform is extremely difficult because each expenditure has constituencies. The TCJA of 2017 eliminated some tax expenditures to pay for rate cuts. Countries with simpler tax systems tend to have fewer tax expenditures.