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Evaluating the Cost-Effectiveness of Individual Income Tax Incentives

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  • Bradley T. Heim

Abstract

This paper examines the cost-effectiveness of individual income tax incentives in the United States. Basic theory is presented to show how income tax incentives can be evaluated in a cost-effectiveness framework using existing estimates of responsiveness. The paper then uses the extant literature to calculate effectiveness-cost ratios for major incentives. About half are found, at least tentatively, to not be cost-effective, including incentives for housing, education, employer-sponsored health insurance, and retirement savings in recent years. The paper finally examines the extent to which the Tax Cuts and Jobs Act likely altered the cost-effectiveness of individual income tax incentives.

Suggested Citation

  • Bradley T. Heim, 2025. "Evaluating the Cost-Effectiveness of Individual Income Tax Incentives," National Tax Journal, University of Chicago Press, vol. 78(1), pages 115-167.
    • Handle: RePEc:ucp:nattax:doi:10.1086/733313
    DOI: 10.1086/733313
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