A Lesson From The Congressional Budget Office On The Impact of "Tax Expenditures"

This article from the CBO provides a lesson on the poorly understood impact of "tax expenditures" on federal tax revenues. They are called tax expenditures because they have the same effect on the federal budget as spending. They have been built into the tax code in order to encourage certain kinds of behavior deemed to be important to Congress. This also provides a lesson on how the tax code enables government to shape public behavior. Some of those behaviors may be of questionable value. For example, payments made by employers for employee health insurance are not subject to taxation. That exclusion shrinks the tax base by a very large amount and it is one of our largest tax expenditures. It may also lead to the overconsumption of healthcare. The deduction of mortgage interest from taxable income is also a major tax expenditure. It may also encourage consumers to purchase more expensive homes than than they may need.

The total impact of tax expenditures on the federal budget exceed spending on Defense, Social Security or Medicare. They should be better understood by the public.