Question

how does tax expenditure reduces tax liability?

Answer 1

Tax expenditures reduce the income tax liabilities of individuals and businesses that undertake activities Congress specifically encourages. For example, the deduction for charitable contributions reduces tax liability for people who donate to qualifying charitable organizations. Tax expenditures can also reduce tax liability for individuals Congress wishes to assist. For example, a portion of Social Security benefits received by retired or disabled people is exempt from federal income tax.

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Answer 2

Tax expenditures are spending.Like all forms of spending, tax expenditures should be assessed for cost effectiveness.“Upside-down” subsidies should be made more fair and better targeted.Eliminating tax expenditures benefiting seniors living on Social Security, working families, and people with very low incomes would be misguided.The tax code should be scrubbed of ineffective business subsidies.Common-sense, fiscally responsible reforms to tax expenditures do not have to wait for comprehensive tax reform.