One possible explanation for the difficulty in controlling the budget is that a major component of spending —tax expenditures—receives privileged status. It is treated as tax cuts rather than spending. This paper explores the implications of that classification and illustrates how it can lead to higher taxes, larger government, and an inefficient mix of spending (too many tax expenditures). The paper then analyzes alternative budgeting approaches that would explicitly incorporate and measure tax expenditures. It concludes by analyzing ways to control tax expenditures (and other spending) and the special challenges presented by tax expenditures.
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