Tax Foundation: Tax Expenditures Subsidizing a Specific Industry "Deserves Outright Elimination"

The Tax Foundation released an August report on tax expenditures.

The Congressional Budget and Impoundment Control Act of 1974 defines tax expenditures as "revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability."

The Tax Foundation wrote that "[l]awmakers interested in reforming this area of the tax code should examine each expenditure individually and first consider what kind of expenditure it is. Does it move us toward a different tax system? Is it spending on an important priority of society at large? Or does it narrowly provide a preference to a specific industry or activity? Answering these questions and classifying the expenditures is critical in determining which are worth keeping."

The Tax Foundation noted that tax expenditures can be divided into three categories. The first category of tax expenditures seeks to modernize our tax code and move it toward some of the tax systems used by our trading partners. The second group of tax expenditures, like the child tax credit, is designed with broader social policy priorities in mind. The final category of tax expenditures subsidizes specific activities and industries, like the credit union exemption from the corporate income taxes.

The Tax Foundation does not believe in the haphazard elimination of tax expenditures to pay for tax reform, as not all tax expenditures are equally worthy of elimination. However, the Tax Foundation believes that tax expenditures that subsidize specific industries "deserve outright elimination."

Read the report.