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A Tax Expenditure is:. defined as “revenue losses … which allow a special exclusion, exemption, or deduction…” relative to “normal income tax law” (“normal” is left undefined and open to interpretation) 1 - PowerPoint PPT Presentation
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A Tax Expenditure is: defined as “revenue losses … which
allow a special exclusion, exemption, or deduction…” relative to “normal income tax law” (“normal” is left undefined and open to interpretation)1
intended to measure those tax provisions that could have been spending programs instead of tax breaks
1. The official definition is in the Congressional Budget and Impoundment Act of 1974 (Public Law 93-344), but its spirit was defined by Stanley Surrey, who in 1967 instructed his staff in the Treasury Office for Tax Policy to list income tax preferences that were similar to expenditure programs.
Tax Expenditure Budget:The size and scope of tax expenditures, many of which are tax incentives for some behavior,
e.g. mortgage interest deduction which encourages some to buy houses (and finance their purchases with debt).
Size of Government Spending Categories Compared with Tax Expenditures, tax year 2007
Defense
Interest
Other Mandatory
Medicaid and Medicare
Social Security
Non-defense Discretionary Spending
Tax Expenditures
0 200 400 600 800
Billions of dollars
Source: TPC tax expenditure estimates, OMB spending categories.
Grew until TRA86, up again
Source: Burman, Geissler, and Toder (2008) at http://www.urban.org/publications/1001234.html
0
25
50
75
100
125
150
175B
illio
ns o
f dol
lars
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
Year
Retirement Plans
Employer-SponsoredHealth Insurance
Mortgage Interest
Charitable Contributions
Earned Income Credit
Selected tax expenditures, nominal dollars
Source: Annual JCT tax expenditure estimates.
0
20
40
60
80
100
120B
asi
s p
oint
s
199
4
199
6
199
8
200
0
200
2
200
4
200
6
200
8
201
0
201
2
Year
Pensions
Employer-sponsoredHealth Insurance
Mortgage Interest
Charitable contributions
Earned Income Credit
Selected tax expenditures, relative to GDP
Source: Annual JCT tax expenditure estimates, CBO projections for GDP.
Table 1: Non-Business Tax Expenditures in 2007, Billions $
TPC OMB JCT Exclusions and above-the-line deductions Retirement plans 126.8 108.2 132.9 Health insurance 141.5 145.7 109.5 Student loan interest 1.1 0.8 0.9 Retirement benefits 23 26.9 22.4 Other 37.2 50.9 56.7 Special capital tax rates 94.8 53.1 127.1 Itemized deductions Mortgage interest 92.4 79.9 73.7 Charitable contributions 43.3 47.4 41.9 Medical expenses 5.6 4.2 8.4 Other 39.4 49.5 51.5 Non-refundable credits Education (HOPE, Lifetime learning) 4.2 5.5 3.1 Other 3.8 3.5 3.9 Refundable credits Child credit 44.9 47.5 45 Earned income credit 43.7 41.8 44.7 Total, all tax expenditures 701.8 664.9 721.7 Total with interactions 760.5
Source: Burman, Geissler, and Toder (2008). Estimates are from the Tax Policy Center (TPC), Joint Committee on Taxation (JCT), and Treasury, as reported by the Office of Management and Budget (OMB).
See full paper at http://www.urban.org/publications/1001234.html
Table 2: Distributional Effects of Eliminating Groups of Tax Expenditures: Percentage Change in After-Tax Income, by Income Quintile
(2007, with no AMT, with interactions)
Bottom Second Middle Fourth Top Top 1% All
Exclusions from Income -0.54 -2.99 -3.79 -3.68 -4.74 -2.9 -4.19 Above the line deductions -0.01 -0.06 -0.09 -0.11 -0.08 -0.06 -0.08 Special tax rates for capital gains and dividends 0 -0.01 -0.04 -0.12 -2.11 -5.87 -1.26 Itemized deductions -0.02 -0.11 -0.38 -1.09 -2.91 -3.24 -1.97 Non-refundable credits -0.05 -0.28 -0.33 -0.23 -0.06 0 -0.14 Refundable credits -5.49 -5 -2.2 -0.99 -0.25 0 -1.14 Total: all provisions -6.52 -8.16 -6.76 -6.79 -11.36 -13.53 -9.57
Source: Burman, Geissler, and Toder (2008)
See full paper at http://www.urban.org/publications/1001234.html
