Overview
The Tax Cuts and Jobs Act, which gave the largest tax cuts to the wealthiest Americans, also failed to address the inefficiency, lack of fairness, and cost of many spending programs administered through the tax code.
Introduction and summary
Government spending through the tax code has flourished in the years since the Tax Reform Act of 1986, which significantly reduced the cost of a large number of tax breaks. In 2019, the federal government will spend roughly $1.6 trillion through special provisions of the tax code, called tax expenditures,1 up from an inflation-adjusted $600 billion in 1988—more than a trillion-dollar difference.2 Yet, as detailed later in this report, tax expenditures receive little direct oversight in the budget process, and many are poorly targeted to the goals they claim to achieve. As a result, the tax code contains many tax expenditures that do not achieve their stated claims, are unfairly skewed in favor of higher-income taxpayers, or both.
This report will review the status of individual tax expenditure policy in the aftermath of the December 2017 tax law, known as the Tax Cuts and Jobs Act (TCJA). After providing a brief review of the theory around tax expenditures, it will use specific examples to explain how the structure of individual income tax expenditures, as amended by the TCJA, affects their cost and who benefits, as well as how some tax expenditures are ineffective, with their underlying goals best not pursued through the tax code at all.