Tax expenditure

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Tax expenditures include tax credits (such as the child tax credit) and deductions (such as home mortgage deduction[1] and the new Obamacare tax credit[2]) that are targeted only to those tax filers who are eligible and not to everyone, and when used by tax filers, reduce federal revenues that would otherwise have been collected.

The policy is widely accepted that tax expenditures are a form of spending and analogous to discretionary spending or mandatory spending for those who meet statutory criteria.[3]

Every year, the U.S. Treasury publishes a tax expenditure budget as required by law. The net effect on the Treasury is the same.[4] There is also case law that tax deductions, exclusions and credits are treated as un-appropriated government spending, or tax expenditure.

President Obama's Simpson-Bowles Commission on Fiscal Responsibility reported in 2010 the that U.S. Tax Code is riddled with $1.1 trillion (roughly equal to current annual deficits) in backdoor spending as hidden tax expenditures.[5]


  1. The Back-Door Entitlement, The Concord Coalition.
  2. Impact of the Obamacare Tax Credits, House Committee on Oversight and Government Reform, Staff Report, October 27, 2011.
  4. Stanley Surrey (former Asst. Secretary of Tax Policy), Pathways to Tax Reform: The Concept of Tax Expenditures (1973).
  5. The Moment of Truth: Report of the National Commission on Fiscal Responsibility and Reform. December 2010. The White House. P. 29, pdf.