What is the primary purpose of a tax expenditure?

The primary purpose of a tax expenditure is to encourage certain behaviors in individuals or businesses. Tax expenditures refer to provisions in the tax code that reduce the amount of tax revenue collected by allowing specific deductions, credits, exemptions, or exclusions. These incentives are designed to promote activities deemed beneficial for the economy or society, such as investing in renewable energy, purchasing a home, or supporting education.

By offering tax benefits, the government aims to influence individual and business decisions in ways that align with public policy goals. For instance, tax credits for electric vehicle purchases encourage consumers to opt for more environmentally friendly transportation options, thereby supporting sustainability initiatives.

In contrast, options that focus on increasing government revenue directly, enforcing compliance, or simplifying the tax process do not capture the intended role of tax expenditures, which is primarily about incentivizing certain actions rather than generating revenue or streamlining processes.