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. 2002 Spring;23(3):131–159.

Figure 4. Distribution of Income Tax Loss, by Type of Deduction and Exclusion: United States, Fiscal Year 2000.

Figure 4

  • Individuals and corporations are granted preferential treatment under Federal income tax laws that are designed to encourage specific types of economic decisionmaking by taxpayers to achieve social and economic objectives of the Federal Government without direct expenditure of Federal funds. This forgone tax revenue resulting from preferential tax treatment is termed “tax expenditures.”
  • In fiscal year 2000, tax expenditures amounted to $643 billion in estimated uncollected revenue due to tax deductions and exclusions (Executive Office of the President, 2001)
  • Some policy analysts suggest that these forgone taxes should be included as Federal spending in this and other national health accounting analyses (Fox and Fronstin, 2000; Fronstin and Ostuw, 2000). Such alternative accounting would assign a large share of health insurance premiums currently counted as private spending to the public sector, increasing the share of overall public spending for health care. The accounting principles underlying this seemingly plausible suggestion need careful assessment (Levit, 2000).
  • Although the preferential tax treatment is designed to achieve specific social and economic goals set forth by government, it is not included in these types of national income and health accounting formats, such as NHA, the U.S. Bureau of Economic Analysis National Income and Product Accounts, the United Nation's System of National Accounts, and the Organization of Economic Cooperation and Development (OECD) Health Accounts.
  • One reason is that no monetary transaction or flow occurs with tax expenditures. Government expenditures that are counted represent money collected by government that is subsequently distributed to purchase health care. In tax expenditures, the government collects no revenue and makes no purchase of health care. In other words, tax expenditures do not meet the standard definitions used to organize and include funding sources. In the NHA, sources of payment expenditures are defined as the funding sources of financial flows between health care bill payers (third-party insurers or households) and health care providers. In this article, expenditures measure the monetary transactions between health care sponsors and third-party bill payers. Forgone tax revenues do not fit the definitions of these taxonomies.
  • It is worth noting that the OECD has constructed a net social expenditure series that recognizes preferential tax treatment in accounts separate from the OECD Health and National Income Accounts (Adema, 2001).