Most people are aware that we spend money on public programs to support various policy goals, but less well known is that we also “spend” a lot of tax money by not collecting it in the first place. Lawmakers and voters can do this by approving exceptions to the state’s (and the nation’s) basic tax structure through what are called “tax expenditures.” The Legislative Analyst’s Office (LAO) estimates that for state fiscal year 2014-15 California would have half again as much General Fund revenue — $55 billion more — if we had no tax expenditures. That’s a big sum of money, and you can bet that if it were program spending, people would scrutinize it with a magnifying glass.
So what do we get from forgoing all this revenue? Do these tax expenditures actually achieve their goals? The truth is, it’s hard to say for sure because we often simply don’t have good data and haven’t done a good job legislating rigorous evaluation and oversight. Tax expenditures vary broadly, ranging from the exemption of most food and candy sales from the sales tax, to the Mortgage Interest Deduction, to tax breaks for businesses, and more. Check out the LAO’s overview of the biggest tax expenditures in California, pros and cons of pushing policy goals through the tax code instead of public programs, and challenges in using them effectively.
— William Chen