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1 William McBride, A Brief History of Tax Expenditures 1 (2013)

handle is hein.taxfoundation/ffdjbxz0001 and id is 1 raw text is: August 22, 2013 No. 391 A Brief History of Tax Expenditures By William McBride, PhD' Introduction The concept of tax expenditures began in the 1960s when Assistant Secretary of the Treasury Stanley Surrey noted that many tax preferences resemble spending. Congress mandated in 1974 that these tax expenditures be recorded annually as part of the federal budget.2 Since the birth of the concept, tax expenditures have been defined as the deductions, credits, exclusions, exemptions, and other tax preferences that represent departures from a normal tax code. As we will see, normal is in the eye of the beholder, and the two government agencies responsible for tracking tax expenditures, Treasury and the Joint Committee on Taxation (CT), often provide different answers when asked what is normal. However, the two agencies' methods are largely consistent with each other from year to year. Thus, the annual tax expenditure reports produced during the budgeting process reveal something about how the tax code has changed over the years and provide some guidance for tax reform.f Attempts to reduce tax expenditures have not been met with great success. The Tax Reform Act of 1986 did not significantly reduce the number of tax expenditures, though it did reduce their real dollar value by about one-third. However, beginning in the mid- to late 1990s, numerous tax expenditures were added, expanded, or otherwise allowed to grow. Today, the tax expenditure budget is $1.2 trillion, which represents real dollar growth of 44 percent since 1986 and 96 percent growth since 1991 when tax expenditures were at their lowest. All of the growth has been in the individual tax code, with about two-thirds of real dollar growth coming from just three provisions: the earned income tax credit, the child credit, and the exclusion for employer-provided healthcare. Corporate tax expenditures have actually declined since 1986 in real dollar terms such that their share of the tax expenditure budget is now about 9 percent, half of what it was in 1986. 1 The author would like to thank Zachary Bartsch and Lyman Stone for their research assistance. 2 Stanley Surrey, Federal Income Tax Reform, 84 HARVARD LAW REVIEW 352 (1970). SFor more on the economics of the major tax expenditures, see Michael Schuyler & Stephen Entin, The Economics of the Blank Slate: Estimating the Effects of Eliminating Major Tax Expenditures and Cutting Tax Rates, TAX FOUNDATION FISCAL FACT NO. 378 (July 26, 2013), /ta tm at ga t1ee n mi -atk-at- t at g- f .te[m at ] ta