Can Tax Expenditure Analysis be Divorced from a Normative Tax Base? A Critique of the "New Paradigm" and Its Denouement‪.‬

I INTRODUCTION In spite of the controversy that surrounds it, tax expenditure analysis (TEA), at its core, is a simple, intuitively obvious idea. For example, assume that recently independent hypothetical country Newlandia uses a currency symbolized by "N" and that it also imposes a 20-percent flat rate tax on annual net income in excess of an N5,000 exemption. Assume further that Newlandia's economy is principally based on production of agricultural commodities with unstable prices. Consequently, the Newlandian Parliament has decided to stimulate manufacturing by providing a subsidy equal to five percent of the first N20,000 of each taxpayer's net manufacturing income above the N5,000 exemption. Thus, a taxpayer with N6,000 of net manufacturing income for a particular year will receive an N50 subsidy, (1) the subsidy for a taxpayer with N25,000 of net manufacturing income will be N1,000, (2) and no taxpayer's subsidy will exceed N1,000 per year.