Tax Expenditures and Tax Reform: Issues and Analysis

Publication Date: October 2006

Publisher: Tax Policy Center

Author(s): Eric Toder

Research Area: Banking and finance

Keywords: Economy; Federal Budgets & Fiscal Policy; Tax Policy; Taxes and Social Programs

Type: Report


Tax reform proposals include both restructuring of the tax system (such as replacing the income tax with a consumption tax or reforming taxation of foreign-source income) and cuts in targeted tax benefits that substitute for spending (such as tax benefits for home mortgage interest and employer paid health insurance). Criteria for analyzing tax reform and expenditure reduction differ. Tax expenditure lists provide useful measures of the costs of "backdoor" spending and departures from an ideal tax base, but have not succeeded in facilitating better choices between using the tax system or direct outlays to promote social and economic policy goals.