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Sunday, May 22, 2011

More on tax expenditures - Minnesota report

An extensive report prepared for the Minnesota Department of Revenue in February 2011 examines the state's tax expenditures and tax expenditures in general. It defines the term, provides examples, notes problems, explains how to review them and offers recommendations for improvement.

I particularly like the statement about examining tax expenditure based on principles of good tax policy. The report notes three key principles: (1) neutrality or efficiency, (2) horizontal equity, and (3) simplicity. The authors note:

"A tax system based on these three principles would have far fewer tax expenditures than currently exist. Efficiency and equal treatment of equals both favor broad tax bases with low rates. Justified tax expenditures would include only tax provisions that offset a market failure or externality or that decrease the cost of tax administration by enough to offset lost efficiency or equity."

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