The Agenda

NRO’s domestic-policy blog, by Reihan Salam.

The Federal Government Loses an Insane Amount of Revenue to Tax Expenditures


A recent presentation by a senior CBO budget analyst to the Maryland Association of CPAs, which I’m sure was much more exciting than it sounds, included this slide:

Tax credits, deductions, and exclusions, in other words, amount to as much of U.S. GDP as the entire federal individual-income tax.

The CBO defines “tax expenditure” very broadly: It includes everything from the fact that employer-paid health-insurance premiums and pension contributions aren’t taxed to the preferential rate for capital gains and dividends and all manner of itemized tax deductions (for mortgage interest, e.g.) and credits (for the production of wind energy, e.g.). As Heritage has pointed out, this is a pretty heterogeneous group, some members of which are just natural parts of good tax policy (I think this is the case for a lower capital-gains rate, though some people disagree). Still, it helps remind us of the economic weight of all the vagaries of the federal tax code, and the size of a few of these expenditures — the exclusion for health insurance, most prominently.

Via economics professor Stephanie Kelton, who is very displeased with the contents of slide 18 (which explain why the CBO thinks higher federal debt is a problem).


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