In this report, Johnson argues that tax expenditures are always wasteful because only a fraction of their cost is passed on to the purported beneficiaries and that direct government dollars could accomplish the same good at a fraction of the cost. He examines tax breaks for municipal bonds, the research tax credit, qualified pension plans, mortgage interest deductions, Opportunity Zones, and conservation easements, finding that they are largely unjustified and need tighter focus and reduced cost.

Conclusion
Tax expenditures are tax reductions accorded to buy specified goods or activities. Most tax deductions are not tax-expenditure issues because they are just adjusting income to reflect the taxpayers’ standard of living or liability to pay tax. Income after tax is privileged waste; no cost-benefit accounting is appropriate. But when the tax expenditure is given purportedly to accomplish some specified good or activity, Congress and the administration need to take better expenditure responsibility to ensure both that the cost is delivered and not captured by middlemen as excess return and that the benefit achieved is worth the tax-lost cost.

Congress and the administration have demonstrated that they do not think of tax expenditures as real costs. They tolerate investors capturing 86 percent of the value of the tax avoided for the highest-taxed investors as excessive returns (rents) and pass only 14 percent to the purported beneficiary. They further tolerate badly specified definitions of the good, which often means the tax expenditure does harm.

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