Corporate tax expenditures are special tax provisions that are exceptions to the normal structure of the corporate income tax system. They represent revenue the federal government forgoes from these tax provisions. The Congressional Budget and Impoundment Control Act of 1974 identified six types of tax provisions that are considered tax expenditures when they are exceptions to the normal tax structure, including exemptions, exclusions, deductions, credits, deferral, and preferential tax rates. Treasury and the Joint Committee on Taxation each compile an annual list of tax expenditures by budget function with estimates of the corporate and individual income tax revenue losses for each tax expenditure in their respective lists. Treasury and the Joint Committee on Taxation calculate separately the estimated revenue losses for each tax expenditure under the assumptions that all other tax expenditures remain in the tax code and taxpayer behavior remains constant. Thus, the estimated revenue losses do not represent the amount of revenue that would be gained if a particular tax expenditure was repealed, since repeal would probably change taxpayer behavior in some way that would affect revenue. Corporate income tax expenditures are estimated for firms organized under the tax code as C corporations, which include most large, publicly held corporations, and have their profits taxed at the entity level under the corporate income tax system (filed on an IRS form 1120). Other types of businesses, such as partnerships and S corporations, are referred to as “pass-through” entities because for tax purposes the income earned by these businesses is attributed to or passed through to the owners of the business and are in general taxed only once under the individual income tax system. Treasury and the Joint Committee on Taxation classify the estimated amounts of tax expenditures claimed (or used) by “pass- through” entities as individual income tax expenditures. The classification of a tax expenditure as corporate or individual, or both is based on the entity that claims or uses the particular tax provision or would report a type of income if it were not excluded from tax. This classification reflects what is referred to as the statutory incidence of the tax expenditure and shows which entities—corporations or individuals, or both—can directly reduce their tax liability because of the tax expenditure. However, as both Treasury and the Joint Committee on Taxation note, the benefits and outcomes from the tax expenditure may be intended to ultimately benefit people other than the direct recipients of the tax expenditure. To the extent that a tax expenditure leads to changes in the prices of particular goods or services, wages, or returns on investment, consumers, employees, or shareholders may see benefits that they otherwise would not have received. A classification based on ultimate beneficiaries would reflect what is known about the economic incidence of tax expenditures rather than the statutory incidence. credit for low-income housing investments, while claimed largely by corporate taxpayers, is intended to ultimately benefit individuals by stimulating the production of affordable rental housing and thereby enabling low-income households to obtain potentially higher quality housing for lower rent than they would have otherwise. See Tax Policy Center, How Big Are Total Individual Income Tax Expenditures, and Who Benefits from Them? Discussion Paper No. 31 (December 2008) and GAO, Understanding the Tax Reform Debate: Background, Criteria, & Questions, GAO-05-1009SP (Washington, D.C.: Sept. 1, 2005). million in tax year 2007 and 2.2 million in tax year 2000. Measured relative to the economy as a share of gross domestic product (GDP), corporate income tax receipts increased in the years leading up to the economic recession that began in December 2007. During this period they increased from 2.1 percent of GDP in 2000 to 2.7 percent of GDP in 2007 and have since decreased to 1.2 percent of GDP in 2011. Both members of Congress and the administration have outlined potential frameworks and proposals for modifying and simplifying the corporate income tax system in recent years. A number of these proposals have involved modifying or repealing some corporate tax expenditures to broaden the corporate income tax base and using the resulting revenue offset to reduce corporate income tax rates. One notable challenge for broader corporate tax reform is the degree to which changes to tax expenditures affect other types of taxpayers claiming them as most corporate tax expenditures are also available to other types of business entities other than corporations. In selecting activities to fund federal policy goals, Congress can choose to enact a tax expenditure rather than a spending program or vice versa for a variety of reasons. We have developed and highlighted criteria and questions for evaluating tax expenditures, including whether other policy tools, such as spending programs, are preferable to tax expenditures. In addition, we have long reported that, once enacted, tax expenditures and their relative contributions toward achieving federal missions and goals are often less visible than spending programs, which are subject to a more systematic review of performance, including results. More recently, the Government Performance and Results Act (GPRA) Modernization Act of 2010 (GPRAMA) established a framework for providing a more crosscutting and integrated approach to focusing on results and improving government performance, including for tax expenditures. GPRAMA makes clear that the Office of Management and Budget, in coordination with federal agencies, is to identify, among other things, the various federal agencies, program activities, and tax expenditures that contribute to the federal government’s performance plan that defines the level of performance to be achieved toward crosscutting priority goals. These crosscutting priority goals cover a limited number of policy areas as well as goals to improve management across the federal government. Moving forward, GPRAMA implementation can help inform tough choices in setting priorities as policymakers address the rapidly building fiscal pressures facing our national government. Estimated revenue losses from corporate tax expenditures have increased over the last few decades in constant dollars, as shown in figure 1. After decreasing in the years following the Tax Reform Act of 1986, due to changes to both tax rates and tax expenditures, corporate revenue losses increased thereafter. Individual revenue losses also increased, although at a faster pace than corporate revenue losses. From 1986 through 2011, the number of tax expenditures with estimated corporate revenue losses increased from 61 in 1986 to 80 in 2011, as shown in figure 2. Estimated corporate revenue losses in 2011, which totaled $181.4 billion, were approximately the same size as the amount of corporate income tax revenue the federal government collected that year. Individual tax revenue losses totaled $891 billion in 2011, and included tax expenditures used by other types of business entities that pass through to individual taxpayers. According to Treasury’s 2011 estimates, 80 tax expenditures had corporate revenue losses. Of those, two expenditures accounted for 65 percent of all estimated corporate revenues losses in 2011 while another five tax expenditures—each with at least $5 billion or more in estimated revenue loss for 2011—accounted for an additional 21 percent of corporate revenue loss estimates. Table 1 shows the seven largest corporate tax expenditures in 2011. A majority of corporate tax expenditures are not isolated to the corporate income tax system but also apply to other types of businesses, including “pass-through” entities. Of the 80 tax expenditures used by corporations, 56 were also used by individuals, as shown in figure 3. Modifying any of these 56 tax expenditures as part of broader corporate tax reform would likely affect both corporate and individual taxpayers to some degree. However, the percentage of corporate taxpayers using these tax expenditures varies considerably across the 56 tax expenditures. For example, some tax expenditures are predominately used by corporations, such as the alcohol fuels credit, with estimated corporate revenue losses comprising 96 percent of the tax expenditure’s estimated $500 million income tax revenue loss in 2011.individuals, such as the exclusion of utility conservation subsidies, where corporations account for less than 5 percent of the $220 million estimated revenue loss in 2011. See appendix II for more information on these 56 tax expenditures’ estimated corporate revenue losses in 2011. Corporate tax expenditures span a majority of federal mission areas, but their relative size differs across budget functions. The 80 corporate tax expenditures had estimated revenue losses in 12 of the 18 budget functions in 2011, as shown in table 2. Of the $181 billion in estimated corporate tax revenue losses, 81 percent was concentrated in the international affairs and housing and commerce budget functions. In these two budget functions, estimated corporate revenue losses were more than federal outlays. Corporate-only tax expenditures generally support or encourage a specific type of entity or activity. See appendix V for the reported purposes for the 24 corporate-only tax expenditures that were the basis for our identification of related federal activities. Some of these tax expenditures have multiple reported purposes that are broader and in pursuit of national priorities. For example, seven corporate-only tax expenditures are aimed at encouraging or supporting the production of specific energy sources or the development of technology or infrastructure for certain energy sectors. These tax expenditures also have broader purposes such as promoting domestic energy production and energy security. Other corporate-only tax expenditures provide support for certain types of entities, such as insurance companies or credit unions. Beyond providing support for these entities, these corporate-only tax expenditures may have additional purposes, which are different or broader in scope, related to why these types of entities receive tax support. However some of these tax expenditures were granted to entities prior to World War II and the rationale for continuing support to these entities may have changed over time, making it difficult to determine the purpose of providing the support. Our previous work highlighted the changing historical basis for one of these tax expenditures—the tax exemption of credit union income—as shown in figure 4. Of the 24 corporate-only tax expenditures, one-third appear to share a similar purpose with federal spending programs. The largest number of these tax expenditures support purposes related to energy- and natural resources and environment-related purposes. These tax expenditures can be broken into two groups: (1) those aimed at encouraging fossil fuel production and development, and (2) those that are intended to encourage technology development, renewable energy, or energy efficiency. We identified related spending programs that appear to share a similar reported purpose with tax expenditures for the second category, but none for the first. See appendix VI for a summary list of related federal spending programs and activities.