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Transforming Tax Expenditures
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For decades, reformers have advocated the repeal of tax expenditures—disguised government spending through special preferences in the Internal Revenue Code. And yet, tax expenditures persist, impairing federal tax receipts by more than $1.8 trillion in 2024. This Article introduces a novel mechanism for tax expenditure reform. To the extent that direct statutory repeal proves impossible or impractical, lawmakers can achieve an equivalent result through a strategy of legislative anti-repeal. By radically expanding a tax expenditure’s legal scope, then adjusting progressive income tax rates to account for revenue loss and distributional considerations, lawmakers can effectively eliminate tax expenditures from the tax base and integrate them into the rate structure—a process this Article defines as “base-rate transformation.”
Base-rate transformations reframe conventional understandings of repeal and restrictive reform, as well as traditional reform narratives oriented around a mantra of “broad base, low rates.” Under certain conditions, statutory expansion operates as de facto repeal—or as restrictive reform. The crucial insight is that, for tax expenditures, the stakes of legal change lie largely in how lawmakers address any adjustments to statutory rates. From a normative perspective, base-rate transformations have implications for customary tax norms such as equity, efficiency, and complexity, as well as the political economy of tax expenditure reform. More generally, base-rate transformations challenge standard framings of tax expenditures and press for a more holistic approach to legislative changes to these provisions.
Title: Transforming Tax Expenditures
Description:
For decades, reformers have advocated the repeal of tax expenditures—disguised government spending through special preferences in the Internal Revenue Code.
And yet, tax expenditures persist, impairing federal tax receipts by more than $1.
8 trillion in 2024.
This Article introduces a novel mechanism for tax expenditure reform.
To the extent that direct statutory repeal proves impossible or impractical, lawmakers can achieve an equivalent result through a strategy of legislative anti-repeal.
By radically expanding a tax expenditure’s legal scope, then adjusting progressive income tax rates to account for revenue loss and distributional considerations, lawmakers can effectively eliminate tax expenditures from the tax base and integrate them into the rate structure—a process this Article defines as “base-rate transformation.
”
Base-rate transformations reframe conventional understandings of repeal and restrictive reform, as well as traditional reform narratives oriented around a mantra of “broad base, low rates.
” Under certain conditions, statutory expansion operates as de facto repeal—or as restrictive reform.
The crucial insight is that, for tax expenditures, the stakes of legal change lie largely in how lawmakers address any adjustments to statutory rates.
From a normative perspective, base-rate transformations have implications for customary tax norms such as equity, efficiency, and complexity, as well as the political economy of tax expenditure reform.
More generally, base-rate transformations challenge standard framings of tax expenditures and press for a more holistic approach to legislative changes to these provisions.
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