CBO on Tax Expenditures

CBO has released a new report “The Distribution of Major Tax Expenditures in the Individual Income Tax System.” A few highlights:

  • There are myriad tax expenditures (cases where taxpayers are treated differently for some reason; like being able to deduct interest if you have a mortgage, but not being able to deduct rent), but the 10 biggest amount to $900 Billion dollars. That means if you got rid of these 10, the deficit would be lots smaller, and in fact it would mean that we were in surplus (though because of behavioral impacts, you cannot assume a $1 to $1 change, necessarily).
  • Who knew it could be so easy! Not. Most of this “tax code spending” flows to higher income households. And guess what, they love it! Have earned it, and deserve it, and are politically powerful, etc.

ScreenHunter_01 May. 30 11.08

Easily Governor Romney’s best idea during last Fall’s campaign was his nascent proposal to cap the amount of benefit that a given taxpayer could reap from tax expenditures. This would reduce this tax code spending while avoiding the politically (hard, impossible?) task of trying to get rid of any of the big ones, and also would make tax reform a fundamentally progressive enterprise because you are limiting the flows to higher income persons while not altering them to lower/middle income taxpayers. And such an approach could help to maintain tax expenditures like the Earned Income Tax Credit that are very important to low income persons, as a share of disposable income. There are also backdoor ways to reduce tax expenditures.  Ed Kilgore has more.

About Don Taylor
Professor of Public Policy (with appointments in Business, Nursing, Community and Family Medicine, and the Duke Clinical Research Institute), and Chair of the Academic Council at Duke University https://academiccouncil.duke.edu/ . I am one of the founding faculty of the Margolis Center for Health Policy. My research focuses on improving care for persons who are dying, and I am co-PI of a CMMI award in Community Based Palliative Care. I teach both undergrads and grad students at Duke. On twitter @donaldhtaylorjr

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