Invisible spending: tax expenditures and the governance gap
Philip Joyce, University of Maryland
To any normal person (that is, one who is NOT a public finance scholar) the term “tax expenditure” naturally seems like an oxymoron. Rather than being expenditures in a traditional sense, these are considered to be items that—as a result of policy decisions—are excluded from what otherwise would be a broader definition of the tax base. In that sense, they are simply what Lester Salamon referred to as one of the “tools of government” (Salamon 2002). That is, in any given policy area they represent one of several alternatives (others being grants, loans, direct expenditures, and regulations to name four) that can be used to promote some policy outcome. The existence of these as simply an alternative to other tools is made clear by the following U.S. Department of the Treasury definition: “Tax expenditures describe revenue losses attributable to provisions of Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of tax liability. These exceptions are often viewed as alternatives to other policy instruments, such as spending or regulatory programs.” (U.S. Department of the Treasury 2024). When we think of tax expenditures as just another way to confer benefits to people, it becomes clear that they should be of broad interest to public policy scholars.