March 20,2013

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Julia Lawless, Antonia Ferrier, 202.224.4515

Which Tax Expenditures Do Senate Democrats Want to Do Away With?

Corporate Jets, Energy Producers Can’t Meet the Nearly $1 Trillion Tax Hike That Democrats Want

Senate Democrats want the American people to believe that through their so-called tax reform plan that closes loopholes for the rich and corporations, the tax code can simultaneously be made more efficient and generate nearly $1 trillion in new revenue while sparing the middle class and small business from tax hikes.  

But Senate Democrats aren’t being honest.  What they are proposing in their Fiscal Year (FY) 2014 Budget isn’t tax reform, it’s massive tax increases that would hit middle class families and small businesses.  In fact, there isn’t enough money to take from the rich to generate nearly $1 trillion – meaning families and small businesses would be the ones holding the bag.  

An examination of the tax code shows that the overwhelming majority of tax expenditures don’t go to corporate jets or energy, they go to the middle class with the top 10 covering more than 70 percent of all individual tax expenditures. In fact, almost one-fourth of tax expenditures represent health care related tax benefits that go to middle and lower-income families.  

The question to Senate Democrats remains: which tax expenditures would they get rid of to generate nearly $1 trillion in new revenue?  The home mortgage interest deduction, the exclusion for employer-sponsored health insurance?

Below is a look at the 10 largest individual income tax expenditures and who they impact – namely middle-class Americans

  1. Exclusion for Employer-Provided Health Insurance:
    Representing 12 percent of tax expenditures, it excludes employer provided health insurance from being taxed, serving as an incentive for employers to provide quality health insurance coverage for employees.
  2. Tax Incentives for Retirement Saving:
    At 11 percent of tax expenditures, there are significant incentives, like the pre-tax treatment for contributions to most 401ks and IRAs, that encourage individuals to save for retirement and also encourage their employers to assist them.
  3. Preferential Tax Rates for Dividends & Capital Gains:
    This accounts for 10 percent of all tax expenditures. This has increased access to capital for American businesses and families to promote investment and savings, while reducing the double-taxation of investment income.
  4. Deduction for State and Local Taxes:
    Representing seven percent of all tax expenditures, this deduction provides relief for individuals that pay income, sales, and property taxes to state and local government.
  5. Home Mortgage Interest Deduction:
    This expenditure accounts for six percent of all tax expenditures and has helped millions of Americans achieve home ownership by reducing the cost of borrowing for home owners.
  6. Exclusion of Medicare Benefits:
    Accounting for nearly six percent of tax expenditures, it prevents seniors from being taxed on the value of the Medicare benefits they receive. 
  7. Earned Income Tax Credit:
    The Earned Income Tax Credit (EITC) accounts for five percent of all tax expenditures and provides a substantial subsidy to low income workers, especially those with children.
  8. Health Law’s Premium Subsidies:
    Included in the President’s health law to help defray the cost to individuals purchasing insurance in the health care exchanges, this accounts for five percent of tax expenditures.
  9. Child Tax Credit:
    At nearly five percent of tax expenditures, the child tax credit provides taxpayers with a refundable tax credit of $1,000 per child to help cover costs associated with raising children.
  10. Exclusion of Cafeteria Plan & Other Employee Fringe Benefits:
    Coming in at four percent of all tax expenditures, this helps workers who receive common employment related benefits like flexible spending accounts for daycare and health care costs, and transportation benefits.

Source:  Estimates of Federal Tax Expenditures for Fiscal Years 2012 -2017, Joint Committee on Taxation (JCS 1-13, February 1, 2013)