by William McBride
August 22, 2013
The concept of “tax expenditures” began in the 1960s when Assistant Secretary of the Treasury Stanley Surrey noted that many tax preferences resemble spending. Congress mandated in 1974 that these tax expenditures be recorded annually as part of the federal budget. Since the birth of the concept, tax expenditures have been defined as the deductions, credits, exclusions, exemptions, and other tax preferences that represent departures from a “normal” tax code. As we will see, “normal” is in the eye of the beholder, and the two government agencies responsible for tracking tax expenditures, Treasury and the Joint Committee on Taxation (JCT), often provide different answers when asked what is “normal.” However, the two agencies’ methods are largely consistent with each other from year to year. Thus, the annual tax expenditure reports produced during the budgeting process reveal something about how the tax code has changed over the years and provide some guidance for tax reform.