46 Pages Posted: 7 Jan 2010 Last revised: 12 Nov 2013
Date Written: April 6, 2010
Explicit federal outlays are determined through elaborate budget procedural rules (framework laws), but tax expenditures in many respects fall outside these established Congressional procedures. The preparation of the annual federal budget therefore privileges tax subsidies over outlays, even though each can substitute for the other. As a consequence, tax expenditures have become the preferred vehicle for delivering new spending programs. Moreover, the low salience of tax expenditures clouds understanding of the government’s allocative interventions among not only the public but also many policymakers. This paper considers how tax expenditures might be brought more directly into the federal budget-setting process. The analysis considers three types of tax subsidies — fixed-dollar allocations, subsidies that are open-ended but offered for a fixed term, and subsidies that are both open-ended and indefinite in term. Just as the federal budget today follows different processes for discretionary spending (appropriations) and direct expenditures (entitlements), so too it is necessary to develop different framework rules for fixed-dollar and uncapped tax subsidies.
Keywords: tax expenditures, tax subsidies, federal budget processes
JEL Classification: H11, H24, H25, H50, H61
Suggested Citation: Suggested Citation
Kleinbard, Edward D., Tax Expenditure Framework Legislation (April 6, 2010). USC CLEO Research Paper No. C10-1; USC Law Legal Studies Paper No. 10-1. Available at SSRN: https://ssrn.com/abstract=1531945 or http://dx.doi.org/10.2139/ssrn.1531945