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Misunderstanding Tax Expenditures and Tax Rates

This article criticizes a proposal recently put forward by the co-chairmen of the National Commission on Fiscal Responsibility and Reform to abolish all tax expenditures and sharply reduce statutory tax rates. The author believes that abolishing all tax expenditures without regard to merit or a proper definition of income for tax purposes is unwise. Furthermore, the emphasis on statutory tax rates is misguided because effective tax rates are the relevant rates for incentives.