A tax expenditure program is government spending through the tax code. Tax expenditures allow exemptions, deductions, or credits to select groups or specific activities. Some might call them tax loopholes or tax write-offs.

Or, as the Treasury states:  :Tax expenditures are revenue losses due to preferential provisions of the Federal tax laws, such as special exclusions, exemptions, deductions, credits, deferrals, or tax rates.”

One of the problems with funding things by tax code write-offs is that these are similar to entitlements (see prior post), meaning that everyone who is eligible receives the tax write-offs .  As such, they are no limits to the total amount of taxes that are written off. The other problem is that there is no debate or discussion about whether these write-offs are appropriate expenses of government or whether they are effective in accomplishing any policy objectives or goals. Another problem is that we don’t see these tax write-offs in context with other government spending. For example, are tax write-offs for business meals more worthwhile for our society than money spent to feed poor children?

Tax expenditures are essentially hidden government expenditures that do not show up in the budget documents. The lack of transparency creates the sense that the top political donors receive benefits that are denied to lower-income families.

For more information, see report by Tax Policy Center:Click Here

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Politics and taxes. So the latest flap in the news is presidential candidate Romney’s statement about how the 47% who don’t pay taxes see themselves as “victims,” are dependent on government and do not understand personal responsibility.

True? What does the data say? From all accounts, 47% did not pay federal income taxes is accurate.

Is that too much or is it unfair? That is a judgmental call.

Are these 47% living off the government? Well, there is some data that can help us determine the truthfulness of that statement.

In a recent post, I tried to figure out how much income defined the middle-class household. With 25 percent of the households earning less than $25,000, they are very likely to have little or no federal tax liability and might, in fact, be eligible for earned income tax credits. That policy was designed to help people who work at low-wage jobs.

It is also true that with the median income around $50,000–well, with deductions for mortgage interest, equity loan interest, property tax deductions, child care, and medical deductions, it is not surprising that some households have more deductions than tax liabilities. They would therefore get a refund of all taxes withheld.

But that is just my general assumption. So I poked around to see if others had gone deeper. Continue reading »