Tuesday, January 22, 2013

Tax Expenditure

Tax expenditure is defined as when the taxpayer pays taxes that would be owed without special provision while in return receiving a government funding equivalent to the sum of tax in that provision. Direct expenditure and tax expenditure could be taken to mean the same as both provide benefits to the recipient. However, the two carry different connotations from a political perspective. Two tools for adding transparency are the tax expenditure budget and the tax expenditure concept.

Medicine: Citizens pay taxes to state and federal governments so as to get medical attention when time of need arises. The government collects taxes from individual citizens to ensure the said citizen is well cared for until a certain age. Citizens become recipients of the taxes they pay to the government. Subsidies to the poor, unemployment insurance, and security pensions are some of the provisions that benefit individual taxpayers. Despite receiving medicine for upkeep of the individual health, taxation strains the recipient’s finances.

  • Tax Expenditure: Employees choosing medical deductions may receive services through their employers. Deductions, according to the payment arrangements of the employer, may be taken from employee’s wages to cover for medical expenses when the employee visits his doctor of choice or designated healthcare provider.

  • Conventional Government Expenditure: This system of arrangement is the prerogative of the government where individuals such as seniors and the disabled receive medical attention through the Medicare program implemented by the government. Medicare is a program for seniors over the age of 65 and for some disabled workers (Hyman, 2011). Medicare is composed of Part A and Part B. Part A is financed by workers payroll taxes and their employers. Part B of Medicare is paid by premiums paid by those covered by the program and by government revenues. Any excess fund is invested in the U.S. Securities to gain interest.

Housing: Governments collect taxes from house owners and property developers to boost their economies. The same tax collected may be used to cover loopholes and finance strategic projects that are vital to the economy and the running of the nation. However, there are property tax relief mechanisms such as exemptions, credits, and abatement provided by governments to give relief to residential property owners burdened by economic strangulation and poor market economy.

  • Tax Expenditure: Any nation that does not control its tax expenditure may be headed for the wrong tax policies that could eventually create economic imbalances and fiscal disadvantage. A portion of the taxes collected from housing properties may be refunded to house owners to allow them gain economic stability and economic confidence. 

  • Conventional Government Expenditure: An example of this form of program is the Housing Authority and Section 8 Vouchers that help the poor to have a roof over their heads. States struggle to ensure everyone has convenient housing regardless of size or arrangement. Almost every state, county, or local government has a Housing Authority and Section 8 program.

Education: Education is vital to the health of a nation. An educated nation has a better chance of developing and emerging above others as a decision maker in the community of nations. Nations that boost their educational institutions have a better prospect of containing other nations through their educational expertise. An example of a nation that is a leader in global perspectives is the United States-the most advanced nation on earth.

  • Tax Expenditure: Students get education tax relief to enable them accomplish their educational goals and play significant role in the advancement of the political, social, and economic advancement of their nation upon completion of their education. Giving students tax breaks allows their parents and other guardians to concentrate on issues that may be beneficial to their families and their country.

  • Conventional Government Expenditure: In this form of expenditure eligible students receive government financial incentives that come in the form of financial aid, scholarships, and grants, subsidized and unsubsidized loans. Students may choose to continue paying accrued interest on their loans while in school or they may put on hold loan payments until they complete their education. In this program, the government imposes significant percentage of taxation on student loans.


Hyman, D.N. (2011). Public finance: A contemporary application of theory to policy (10th ed.). Thousand Oaks, CA: South-Western Cengage Learning.

No comments: