ABSTRACT
Tax expenditures have little to do with either tax collections or government expenditures. In fact, they are taxes governments do not collect. In the simplest terms, tax expenditures are tax breaks. More formally, they are taxes governments forgo through provisions of tax law, such as credits, exemptions, and deductions, that reduce the amounts taxpayers would otherwise pay. The term “tax expenditure” applies because such tax breaks often serve policy objectives that governments could accomplish instead by means of regular spending programs. A government could, for example, provide support for lower-income working families by establishing a program that would provide direct payments to such families. Alternatively, the government could choose to help struggling families by enacting measures that lower their taxes, thereby creating tax expenditures.
