Getting a Handle on Tax Expenditures

Fight disinformation: Sign up for the free Mother Jones Daily newsletter and follow the news that matters.

“Tax expenditures” are special deductions, exclusions, exemptions, and credits in the tax code — basically ways of spending money by reducing taxes instead of directly funding a federal program. In the current issue of the Washington Monthly, Suzanne Mettler says we should cut them way back:

The broader goals of progressive politics are undermined by tax expenditures. Reducing them is a goal we should embrace. The problems start with their redistributive impact.

Most Americans assume that U.S. government social programs aid primarily the poor and the middle class, but tax expenditures generally shower their most generous benefits on those in the upper reaches of the income spectrum. To be sure, there are exceptions—most notably the EITC, which genuinely aids the working poor, and Clinton’s HOPE credit, which targeted the middle class. But in the main, such policies are upwardly redistributive, despite rhetoric to the contrary….In 2004, 69 percent of the benefits of America’s home mortgage interest deduction were claimed by households with incomes of $100,000 or above—the top 15 percent of the income distribution. That same group also reaped 55 percent of the benefits emanating from the tax-free status of retirement benefits and 30 percent of those from employer-provided health benefits.

OK, I’m sold. For the most part, tax expenditures are lousy policy, they hide the actual size of government programs, they’re poorly targeted, and they create intractable political problems. Still, you know what I’d like to understand first? Just how big a problem are they? Here are three different estimates:

  • Based on figures from the Center for American Progress, I estimated a few weeks ago that tax expenditures had decreased from 8.1% of GDP to 7.0% of GDP between 1982 and 2010.
  • Mettler says tax expenditures have grown from 4.2% of GDP to 7.4% of GDP between 1976 and 2008.
  • The Congressional Research Service says tax expenditures have grown from about 5.8% of GDP to 7.2% of GDP between 1974 and 2011.

I’m guessing that the CRS numbers are pretty reliable, and their recent report includes a chart that shows the entire tax expenditure picture instead of cherry picking just a couple of years. Here it is:

Like I said, I think there are lots of good reasons to reduce tax expenditures. At the same time, this chart doesn’t really suggest that they’re some kind of skyrocketing, out-of-control problem. There was a big rise in tax expenditures in the early 80s that was reined in by the 1986 Tax Reform Act, and aside from that temporary bump they’ve held pretty steady for the past four decades aside from a modest increase as a result of the two Bush tax cuts. If we just let the Bush tax cuts expire, we’d be back to 1974 levels.

So go ahead and whack ’em. But take with a grain of salt any suggestion that tax expenditures have been soaring in recent decades. Most of the big ones have been around since World War II or longer and they’ve been hanging around ever since.

WE'LL BE BLUNT

It is astonishingly hard keeping a newsroom afloat these days, and we need to raise $253,000 in online donations quickly, by October 7.

The short of it: Last year, we had to cut $1 million from our budget so we could have any chance of breaking even by the time our fiscal year ended in June. And despite a huge rally from so many of you leading up to the deadline, we still came up a bit short on the whole. We can’t let that happen again. We have no wiggle room to begin with, and now we have a hole to dig out of.

Readers also told us to just give it to you straight when we need to ask for your support, and seeing how matter-of-factly explaining our inner workings, our challenges and finances, can bring more of you in has been a real silver lining. So our online membership lead, Brian, lays it all out for you in his personal, insider account (that literally puts his skin in the game!) of how urgent things are right now.

The upshot: Being able to rally $253,000 in donations over these next few weeks is vitally important simply because it is the number that keeps us right on track, helping make sure we don't end up with a bigger gap than can be filled again, helping us avoid any significant (and knowable) cash-flow crunches for now. We used to be more nonchalant about coming up short this time of year, thinking we can make it by the time June rolls around. Not anymore.

Because the in-depth journalism on underreported beats and unique perspectives on the daily news you turn to Mother Jones for is only possible because readers fund us. Corporations and powerful people with deep pockets will never sustain the type of journalism we exist to do. The only investors who won’t let independent, investigative journalism down are the people who actually care about its future—you.

And we need readers to show up for us big time—again.

Getting just 10 percent of the people who care enough about our work to be reading this blurb to part with a few bucks would be utterly transformative for us, and that's very much what we need to keep charging hard in this financially uncertain, high-stakes year.

If you can right now, please support the journalism you get from Mother Jones with a donation at whatever amount works for you. And please do it now, before you move on to whatever you're about to do next and think maybe you'll get to it later, because every gift matters and we really need to see a strong response if we're going to raise the $253,000 we need in less than three weeks.

payment methods

WE'LL BE BLUNT

It is astonishingly hard keeping a newsroom afloat these days, and we need to raise $253,000 in online donations quickly, by October 7.

The short of it: Last year, we had to cut $1 million from our budget so we could have any chance of breaking even by the time our fiscal year ended in June. And despite a huge rally from so many of you leading up to the deadline, we still came up a bit short on the whole. We can’t let that happen again. We have no wiggle room to begin with, and now we have a hole to dig out of.

Readers also told us to just give it to you straight when we need to ask for your support, and seeing how matter-of-factly explaining our inner workings, our challenges and finances, can bring more of you in has been a real silver lining. So our online membership lead, Brian, lays it all out for you in his personal, insider account (that literally puts his skin in the game!) of how urgent things are right now.

The upshot: Being able to rally $253,000 in donations over these next few weeks is vitally important simply because it is the number that keeps us right on track, helping make sure we don't end up with a bigger gap than can be filled again, helping us avoid any significant (and knowable) cash-flow crunches for now. We used to be more nonchalant about coming up short this time of year, thinking we can make it by the time June rolls around. Not anymore.

Because the in-depth journalism on underreported beats and unique perspectives on the daily news you turn to Mother Jones for is only possible because readers fund us. Corporations and powerful people with deep pockets will never sustain the type of journalism we exist to do. The only investors who won’t let independent, investigative journalism down are the people who actually care about its future—you.

And we need readers to show up for us big time—again.

Getting just 10 percent of the people who care enough about our work to be reading this blurb to part with a few bucks would be utterly transformative for us, and that's very much what we need to keep charging hard in this financially uncertain, high-stakes year.

If you can right now, please support the journalism you get from Mother Jones with a donation at whatever amount works for you. And please do it now, before you move on to whatever you're about to do next and think maybe you'll get to it later, because every gift matters and we really need to see a strong response if we're going to raise the $253,000 we need in less than three weeks.

payment methods

We Recommend

Latest

Sign up for our free newsletter

Subscribe to the Mother Jones Daily to have our top stories delivered directly to your inbox.

Get our award-winning magazine

Save big on a full year of investigations, ideas, and insights.

Subscribe

Support our journalism

Help Mother Jones' reporters dig deep with a tax-deductible donation.

Donate