GAO Notes Importance of Tax Expenditures’ Distributional Impact

Published by Michael Novogradac on Tuesday, April 16, 2013 - 12:00am

In the April 2013 Novogradac Journal of Tax Credits, I note that most parties involved in the tax reform discussion agree that tax expenditures should be evaluated before being limited, eliminated or otherwise changed. One recurring criterion that has emerged for evaluation is that of distributional impact, meaning who primarily benefits from an expenditure.

And in a Government Accountability Office (GAO) report released today, “Corporate Tax Expenditures: Information on Estimated Revenue Losses and Related Federal Spending Programs,” the authors note that the official classification of a tax expenditure as corporate or individual, or both, is based on the entity that claims or uses the particular tax provision or would report a type of income if it were not excluded from tax.

However, of particular interest to affordable housing community is this passage, which uses the low-income housing tax credit as an example of the importance of who ultimately benefits:

“A classification based on ultimate beneficiaries would reflect what is known about the economic incidence of tax expenditures rather than the statutory incidence. For example, the credit for low-income housing investments, while claimed largely by corporate taxpayers, is intended to ultimately benefit individuals by stimulating the production of affordable rental housing and thereby enabling low-income households to obtain potentially higher quality housing for lower rent than they would have otherwise.”