TaxVox (the blog of the Tax Policy Center) has a good post today on tax “loopholes.”  The author, Eric Toder, is responding to the faulty yet widespread use of “loopholes” as a synonym for “tax expenditures” at the federal level, but it certainly corresponds to the debate here in Washington as the legislature considers the 2011-13 budget.

We only briefly touched on the language issue in our brief on tax preferences, but the TaxVox post nicely explains the difference between a tax expenditure and a loophole:

The Congressional Budget Act of 1974 defines “tax expenditures” as “revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of liability.” . . .

But the largest tax expenditures are not loopholes or earmarks snuck into the law in the dead of night to benefit a shadowy handful of super-wealthy individuals or well-connected corporations. Rather, they benefit tens of millions of taxpayers. . . .

When people think of “tax loopholes”, they rightly think of sophisticated transactions that enable the well-advised to avoid taxes that Congress wanted them to pay. When they think of “tax earmarks”, they rightly think of narrow and highly technical provisions slipped into legislation at the behest of a compliant Member of Congress. These provisions—once dubbed “rifle shots” — benefit only a few very specific taxpayers (sometimes only one), and are the tax equivalent of appropriated funds given to a single project or congressional district.

Labeling broad provisions that are easy to use and benefit millions of taxpayers as “loopholes” or “earmarks” exaggerates the benefits of tax reform. But worse than deceiving others is the self-deception this misuse of language produces.

Many of the tax policies being decried in Washington lately are not loopholes at all, and describing them as such muddies the discussion.  Indeed, tax preferences play an important role in our tax system.