Tax expenditures: Using tax credits and deductions as policy tools, 2010 June

Any provisions in the tax code to favor certain groups of taxpayers, or certain kinds of activities, results in a loss of revenue.The amount of revenue lost depends on the tax rate and how many people respond to the opportunity created by the tax provision.Economists consider the revenue foregone as equivalent to a direct expenditure on the same purpose.These revenue-reducing provisions are known as tax expenditures.Many tax expenditures favor charitable organizations.The revenue lost from the federal income tax deduction for charitable contributions alone is estimated at $47 billion in 2008.Some states, not including South Carolina, exempt these nonprofits from paying sales taxes, and all states exempt them from local property taxes.Saving for retirement, creating jobs, owning a home, adopting a child, and preserving wildlife habitat are just a few of the many kinds of activities that can result in a lower tax burden on the individual and lower revenue to the government.