Tax expenditures were the subject of an Advisory Committee on Transparency event in June. Although they make up the equivalent of one quarter of the federal budget, there is a lot of mystery around this type of hidden spending in the tax code.
Tom Hungerford, a CRS analysis who has written extensively about tax expenditures, provided the technical definition of a tax expenditure while focusing his remarks on how just a few tax exemptions - such as the mortgage credit - account for nearly 70 percent of expenditures. He described the rise of tax expenditures as a significant portion of the federal budget and identified recent attempts to rein in this spending.
Lori Metcalf, who helped build Subsidyscope - a tax expenditure database for the Pew Charitable Trusts - explained the difficulty of figuring out exactly how much money the government spends through tax expenditures. She highlighted specific problems related to accessing data spread across government websites and extracting it from non-machine-readable PDFs. The government only makes estimates about tax expenditures available without keeping track of how accurate these estimates are.
Jason Feinberg, a legislative assistant for Rep. Quigley, highlighted legislative efforts such as the Transparency and Sustainable Budget Act of 2011 aimed at addressing the difficulty of tracking tax expenditures. He described how tax expenditures are often less scrutinized by Congress even though they frequently dwarf their directed spending counterparts.
Eric Toder, a fellow at the Urban Institute, explained that many tax expenditures provide funding for popular programs such as subsidies for new technology and the home mortgage credit. He said that programs such as these are not necessarily wasteful and should not be eliminated outright. He advocated for a comprehensive approach to addressing tax expenditures that involves evaluating each provision based on its own merit.
William Beach, Director of the Center for Data Analysis at the Heritage Foundation, emphasized the importance of fairness in the tax code and provided a graphic demonstrating how tax expenditures have unevenly distributed the tax burden. He also argued for a comprehensive reform plan, pointing out that the problem cannot be solved by merely separating individual and corporate tax breaks.
The event was moderated by Daniel Schuman, Director of the Advisory Committee on Transparency, and emphasized the problem of a lack of transparency and accountability with regards to tax expenditures as a form of federal spending.
Event Flier PDF
Dear Colleague Letter - Rep. John Tierney (MA-06) PDF
Tax Expenditure Legislation and Reports - Rep. Mike Quigley (IL-05) PDF
PEW Subsidy Scope Tax Expenditure Database PDF
Marginal Tax Rate Graphic - Bill Beach, Heritage Foundation PDF
More information on tax expenditures -- including reports by the panelists, in-depth research, and a partial list of efforts to track tax expenditures – is available at http://transparencycaucus.org/resources/tax-expenditures/
For a short primer on tax expenditures, see Why You Should Care About Tax Expenditure Transparency, available at http://bit.ly/TaxPrimer
For a more in-depth overview of tax expenditures, see Tax Expenditures and Government Size and Efficacy, available at http://bit.ly/TaxPrimer2
View video of the event below: