Tax Expenditures

Want to Reduce the Deficit and Cut Spending? Start by Looking at $1 Trillion in Hidden Tax Code Spending

This is the latest in a weekly series from CAP’s Doing What Works team showing how we can make smart budget cuts that boost government efficiency—not gut essential services.

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The federal government today spends $1 trillion through special provisions in the tax code—the exemptions, deductions, and credits known as “tax expenditures” because they are identical in effect to direct spending. The last time Congress systematically reviewed and cut back these programs was in 1986, and they’ve grown out of control since then. Those that don’t serve important public purposes should be scrapped. Those that aren’t effective should be reformed.

We can save billions of dollars a year by eliminating and reforming tax earmarks

  • Tax expenditures add up to more than $1 trillion in spending every year.
  • We spend more on tax earmarks than on Social Security, Medicare, Medicaid, or national defense.
  • For any lawmaker serious about eliminating our deficit, many tax expenditures are low-hanging fruit ripe for the picking.

tax expenditures add up to more than three-fourths of all individual and corporate tax revenue

Tax earmarks are often wasteful and inefficient, and subject to little or no scrutiny

  • Almost all tax earmarks don’t require annual approval from Congress, so they automatically renew and tend to increase every year, flying under the radar of media and popular opinion.
  • Tax earmarks are not measured for effectiveness, so they’re more likely than direct spending programs to be ineffective initiatives or giveaways to the politically powerful.
  • For example, at a time of record industry profits, we’re still giving away more than $4 billion a year in tax earmarks for oil and gas companies—even though these giveaways have been extremely ineffective in lowering gas prices or boosting investment.

Wasteful tax breaks must be on the chopping block if we’re serious about reducing the deficit

  • Cutting wasteful spending out of the tax code is better than cutting critical public services and investments.
  • Corporate tax breaks should be evaluated every year for effectiveness, and only renewed if proven to create jobs and improve the economy.
  • Let’s start by getting rid of tax earmarks to oil and gas companies, hedge fund managers, horse breeders, timber companies, agribusinesses, drivers of sport utility vehicles, and people who own mansions, vacation homes, and boats that they claim as second homes.

Gadi Dechter is Associate Director of Government Reform at the Center for American Progress.

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Gadi Dechter

Managing Director

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