Evaluation of Tax Expenditures

Published by Michael Novogradac on Thursday, September 8, 2011 - 12:00am

As we consider various tax expenditures, with Tax Reform looming on the horizon, a framework for evaluating each tax expenditure is needed. I have blogged about this need before.

One starting point would be preparing an analysis similar to that contained in Section 272 of the ‘‘American Jobs and Closing Tax Loopholes Act of 2010”.  Section 272 would have mandated that the Joint Committee on Taxation prepare the following analysis for each tax expenditure:

(Note: this provision did not become law!)

“(1) An explanation of the tax expenditure and any relevant economic, social, or other context under which it was first enacted.

(2) A description of the intended purpose of the tax expenditure.

(3) An analysis of the overall success of the tax expenditure in achieving such purpose, and evidence supporting such analysis.

(4) An analysis of the extent to which further extending the tax expenditure, or making it permanent, would contribute to achieving such purpose.

(5) A description of the direct and indirect beneficiaries of the tax expenditure, including identifying any unintended beneficiaries.

(6) An analysis of whether the tax expenditure is the most cost-effective method for achieving the purpose for which it was intended, and a description of any more cost-effective methods through which such purpose could be accomplished.

(7) A description of any unintended effects of the tax expenditure that are useful in understanding the tax expenditure’s overall value.

(8) An analysis of how the tax expenditure could be modified to better achieve its original purpose.

(9) A brief description of any interactions (actual or potential) with other tax expenditures or direct spending programs in the same or related budget function worthy of further study.

(10) A description of any unavailable information the staff of the Joint Committee on Taxation may need to complete a more thorough examination and analysis of the tax expenditure, and what must be done to make such information available.”

So, with that said, let me know your thoughts on the above ten evaluation points.  What is missing?  What isn’t needed?