The Hidden Hand of Government Spending

Abstract:     
“Tax expenditures” are government subsidies that are provided through the tax code, by granting tax credits or other tax benefits in exchange for goods and services that government values. Politically, tax expenditures are valued because they increase government intervention without increasing explicit government spending, but economically they are little different from traditional subsidies. Tax expenditures have grown in importance to a size unimaginable 40 years ago, when they were first were identified as a budget problem. The current congressional appetite for tax expenditures has distorted not just tax policy, but also the budget process and congressional oversight of the money it spends. The tax-writing committees have employed tax expenditures to extend the committees’ reach and to become, in fact, a Congress within the Congress.

Number of Pages in PDF File: 6

Keywords: tax expenditures, tax credits, tax code, federal government spending, wasteful government spending, u.s. government

JEL Classification: H20, H21, H25

Accepted Paper Series