tax expenditure

Tax expenditures are a way governments provide financial advantages for specific private activities. Instead of directly funding these activities through the regular budget, governments build preferential treatment into the tax system, such as allowing deductions for home mortgage interest. These advantages function as subsidies.1

Tax expenditures are reviewed by tax-writing committees, unlike appropriations, and can face less scrutiny. They can also affect the perception of fairness in the tax system. Both the United States and many other countries include a tax expenditure budget alongside their traditional budget.1