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Tax Expenditures Compared with Outlays by Budget Function: Fact Sheet: Date: January 15, 2004 1 (January 15, 2004)

handle is hein.tera/crstax0502 and id is 1 raw text is: Order Code RS21710 January 15, 2004 CRS Report for Congress Received through the CRS Web Tax Expenditures Compared with Outlays by Budget Function: Fact Sheet Nonna A. Noto Specialist in Public Finance Government and Finance Division The federal government carries out public policies through tax expenditures as well as direct expenditures and regulations. In fact, in some categories of federal activity, tax expenditures far exceed outlays. A tax expenditure is the estimated revenue loss from the corporate or individual income tax associated with special tax treatment. The outlay equivalent tax expenditure is the amount of budget outlays that would be required to provide taxpayers with the same after-tax income that would be received through the tax expenditure and hence is larger than the corresponding tax expenditure. As noted in the federal budget, the outlay-equivalent measure allows the cost of a tax expenditure to be compared with a direct federal outlay on a more even footing. Table 1 presents, for FY2002, the Office of Management and Budget's estimate of the outlay equivalent of tax expenditures as a percentage of outlays by the functional categories in the United States budget. This simple comparison reveals that tax expenditures dominate outlays for education, training, employment, and social services; energy; commerce and housing credit; and general government (percentages over 125%). Outlays and tax expenditures share more equally in the areas of health; income security; international affairs; and general science, space, and technology (percentages between 75% and 125%). Direct expenditures dominate in the areas of defense, Medicare, income security, Social Security, veterans' benefits and services, natural resources and environment, transportation, community and regional development, interest, agriculture, and the administration of justice (percentages under 75%). In the aggregate, the outlay equivalent of tax expenditures approximates half of total outlays. Typically, neither the Office of Management and Budget nor the Joint Committee on Taxation sums functional or budget totals for tax expenditures because of possible interacting behavioral effects if one or more provisions were eliminated. Sums of categories were used here to enable a rough comparison between the outlay equivalent of tax expenditures and outlays. See also U.S. Congress, Senate, Committee on the Budget, Tax Expenditures: Compendium of Background Material on Individual Provisions, Prepared by the Congressional Research Service, Committee Print S. Prt. 107-80, 107th Cong., 2nd sess., December 19, 2002, Washington, December 2002. Congressional Research Service ** The Library of Congress

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