Hastings Law Journal


Linda Sugin


Proponents of tax expenditure analysis have insisted that when tax programs are economically equivalent to direct spending programs, they should be treated as legally equivalent. While agreeing that tax expenditure analysis is a tool of immense importance and usefulness to legislatures, Professor Sugin argues that courts should be wary about adopting that analysis into constitutional adjudication. She analyzes the problems of legalizing tax expenditure analysis by exploring the definitional problems inherent in defining the tax base, the political manipulability of the tax expenditure budget, the dangers of constitutionalizing the definition of income, and the theoretical challenges presented by the hybrid income-consumption tax that currently exists in the Internal Revenue Code.

Rather than requiring wholesale legal equivalence, Professor Sugin argues that the policies reflected in different constitutional provisions should determine whether tax expenditures and their economically equivalent direct-expenditure counterparts should be legal equivalents. Applying that approach to the equal protection and establishment clauses of the Constitution, Professor Sugin concludes that: the allowance of economic benefits is not of central importance under either of those provisions; other interests that are important under those provisions may be better served by either providing a government benefit directly or through the tax system; and, tax expenditure analysis has little to offer in the constitutional review of tax benefits under those constitutional provisions. By analyzing the charitable contribution deduction in light of equal protection and establishment clause doctrine, Professor Sugin determines that tax-based aid to private organizations could be constitutional even where equivalent direct spending programs would not.

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