Spending and Tax Expenditures: Distinctions and Major Programs (CRS Report for Congress)
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| Release Date |
Revised July 9, 2019 |
| Report Number |
R44530 |
| Report Type |
Report |
| Authors |
Grant A. Driessen, Analyst in Public Finance |
| Source Agency |
Congressional Research Service |
| Older Revisions |
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Summary:
Spending programs and tax expenditures are the two primary ways that the federal government
provides benefits to the public. Though each type of intervention represents a transfer from the
government to individuals and firms, differences in the budget process, saliency, and targeting
may have ramifications for usage across different types of services. This report briefly describes
spending programs and tax expenditures, observes a few ways that they differ, and discusses how
those distinctions may inform the relative use of each policy across the government portfolio.
Federal expenditures (spending) are transfers from the federal government to individuals, firms,
or institutions that do not draw directly from individual or corporate tax liability. Federal
spending programs fall into three broad categories: (1) discretionary spending, (2) mandatory
spending, and (3) net interest payments. The Congressional Budget Office (CBO) estimates that
federal resources devoted to spending programs will total $3.897 trillion in FY2016, or 21.1% of
annual gross domestic product (GDP).
Tax expenditures are revenue losses attributable to federal tax provisions. There are three main
types of tax expenditures: (1) exclusions, exemptions, and deductions from gross personal or
corporate income; (2) preferential tax rates for certain programs; and (3) refundable and
nonrefundable tax credits. The Joint Committee on Taxation (JCT) estimates the revenue losses
attributable to certain programs. As of December 2015, projected revenue losses due to tax
expenditures in FY2016 summed to $1.521 trillion, or 8.2% of GDP.
Holding other activities constant, an increase in spending programs or tax expenditures will
increase net budget deficits. However, differences in the characteristics and composition of
spending and tax expenditures may have implications for the way each is used across major
sectors of the federal budget. Federal spending programs may be better able to target groups that
are unlikely to file federal tax returns, like low-income and elderly households. Tax expenditures
may be more likely than spending programs to utilize targeting and enforcement services already
undertaken by the federal government.
Other differences important to federal usage occur within certain types of federal spending and
tax expenditures. Discretionary spending and, in some cases, expiring tax expenditures typically
involve more frequent legislative action than mandatory spending and permanent tax expenditure
programs. Discretionary spending programs also provide increased budget certainty to Congress
through the use of budget authority, while mandatory spending and tax expenditure resources
depend on the participation and benefit choices of program recipients.
This report identifies the largest spending and tax expenditures across eight major categories of
federal activity: (1) defense and international affairs; (2) general science, space and technology,
natural resources and the environment, and agriculture; (3) commerce and housing, community
and regional development, and transportation; (4) education, training, employment, and social
services; (5) health, including Medicare; (6) income security; (7) Social Security and veteransâ
benefits; and (8) administration of justice and general governance.
