A Review of Selected Corporate Tax Privileges

The term tax expenditure is commonly used to describe both tax privileges granted to politically favored special interests and also patches to the income tax system that address economic inefficiencies. This paper focuses on the difference between tax provisions that should be labeled as tax expenditures (i.e., tax privileges) and those, if properly accounted for, that should not be counted as tax expenditures at all (i.e., those that address economic inefficiencies). The distinction is illuminated through a review of selected corporate tax expenditures, which shows that almost 65 percent of corporate tax expenditures privilege certain activities or industries while excluding others. Cataloging tax expenditures by using a consumption baseline would allow policymakers to properly contextualize these expenditures as a form of privilege, economically indistinguishable from any other government subsidy.

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