The extra taxes that have to be raised to finance a new government spending commitment create a Marginal Excess
Tax Burden (METB), defined as the ratio of the loss of social surplus due to imposition of the tax, divided by the total amount of revenue collected.
For nearly two decades, the Office of Management and Budget had directed Federal agencies to include an average marginal excess
burden of 25 cents per dollar when conducting cost-benefit analyses of Federal programs.
The marginal welfare cost, MWC, is defined as the marginal excess
burden divided by the change in tax revenue.
It is important to consider the marginal excess
burdens arising from the tax change, equal to the excess of the change in welfare over the extra tax raised, since this indicates the degree to which inefficiencies arise from the distortionary effect of the tax change.
Over the past twenty years or so, one of the major insights to come out of public-sector economics is that the marginal cost of government provision ought to include the marginal excess
burden of taxation.