69 Am. U. L. Rev. 479 (2019).

* Edwin S. Cohen Distinguished Professor of Law and Taxation, University of Virginia School of Law. This Article was written in part while the author was professor in residence at the International Bureau of Fiscal Documentation, Amsterdam. The author thanks Reuven Avi-Yonah, John Brooks, Quinn Curtis, John Duffy, Lilian Faulhaber, Josh Fischman, Jens Frankenreiter, Brian Galle, Sriram Govind, Werner Haslehner, Andrew Hayashi, Georg Kofler, Sarah Lawsky, David Lenter, Mitchell Kane, Rebecca Kysar, Michael Livermore, Helena Malikova, Tarcísio Magalhães, Omri Marian, Tom Nachbar, Lee Osofsky, Fadi Shaheen, Dan Shaviro, Paul Stephan, Bret Wells, and workshop participants at Boston College, BYU, Fordham, the IBFD, Luxembourg University, the Max Planck Institute for Tax Law and Public Finance, Northwestern University, Georgetown University, University of Houston, University of Pennsylvania, University of Virginia, and Vienna University of Economics and Business Administration. I owe special thanks to Michael Knoll and Wolfgang Schön for reading multiple drafts. Librarians at the UVA Law Library, especially Xinh Luu, provided excellent research support, as did my research assistants, Justin Aimonetti, Emily Ostertag, and Griffin Peeples. This Article benefitted from discussions with tax practitioners and Commission officials; it represents only my own views. © 2019, Ruth Mason, all rights reserved.

This Article argues that current methods for identifying illegal tax subsidies trigger the well-known conceptual difficulties of tax-expenditure analysis. To avoid these problems—particularly the irresolvable conflict over the correct baseline for measuring tax expenditures and tax subsidies—this Article advocates the “internal consistency test” as a superior method for identifying illegal subsidies. Developed by the U.S. Supreme Court to evaluate the compatibility of state taxes with the dormant Commerce Clause, the internal consistency test easily can be adapted to the subsidy context.