Opinion: “Tax Expenditures”

It’s the time of the year when Washington begins to address the Federal Budget. The first step in the process is for the Congressional Budget Office (CBO) to create “Baseline Budget Projections”. Those numbers represent the CBO’s best estimate of what the next ten years’ financial statements would look like if no changes are made. It is always a good place to start.

When I went to the CBO’s website and chose 2021 Baseline Projections I was taken to a website that showed both narrative and charts. One of the first charts I saw showed Outlays, Receipts and something labeled “Tax Expenditures”. At first I was confused. What are “tax expenditures”? How are they different from normal expenditures or what are normally labeled as outlays?

But it didn’t take long for me to realize what they were showing was the estimated value of tax deductions and credits. These were broken down based on whether they applied to Individual Income Taxes, Corporate Taxes or or others.

So Washington considers taxes that could have been collected if the tax code didn’t outline a particular deduction or credit that allowed some income not to be taxed as an “Expenditure”? I couldn’t help but look up the definition of “expenditure”.

Cambridge Dictionary: “the total amount of money a government or person spends.”

Merriam – Webster: 1. “the act or process of expending” Example: “an expenditure of energy” 2. “something expended” Example: “Income should exceed expenditures”

The use of the term “Tax Expenditure” by Washington is so telling. Those in Washington seem to believe if you have income that hasn’t been taxed, that is a cost (or expenditure) to Washington. They seem to say “Look! If that tax break (deduction or credit) didn’t exist we would have so much more money to spend.”

Finally, I couldn’t help but chuckle when I saw the example that Merriam – Webster uses for their second definition of “expenditure”. “Income should exceed expenditures.” Wouldn’t it be nice if our members of Congress and those in Washington understood that and put it into practice. Instead they are lamenting the fact that the tax code includes deductions and credits that are taking money away from them.

Beware when they claim deductions and credits are “expenditures”. When Congress must look for ways to reduce “expenditures”, “tax expenditures” will probably be the first place they look!

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