Those dang federal tax breaks! We just know that the super-rich are exploiting the tax code while we’re too dumb to take advantage. Right?
Well, no. Turns out some of the biggest tax breaks in the U.S. tax code are distinctly middle class.
The non-partisan Congressional Research Service recently put together a handy document that makes it relatively easy to understand non-corporate tax breaks (expenditures in budget-speak).
Researchers estimated that while there are more than 200 separate tax breaks in the code, 20 of those represent 90 percent of the revenue loss to the Treasury.
Here’s the CRS chart (click on it for a larger view):
The agency notes:
Is it possible to repeal or substantially trim most special tax deductions, credits, exclusions, and special rates, also known as tax expenditures? If so, the potential for lower rates or additional revenue would be significant.
For FY2014, the year used in analyzing these provisions, individual income tax expenditures, which account for most of the potential base broadening provisions, are projected to total over $1.1 trillion. This amount is equivalent to 74% of the total FY2014 revenue from individual income taxes, and about 7% of GDP.
In other words, eliminating all those tax breaks would put us well on the way to closing the huge annual U.S. budget deficit and set us on path to actually pay down all our outstanding national debt, now up above $15.5 trillion.
Or you could use the cash to slash personal income tax breaks.
You see where this is headed?
Who’s willing to give up tax breaks for employer health insurance, pensions and (gasp) mortgage interest — stuff that is largely tied to middle income America?
When the president’s own commission proposed a dramatic federal financial reform plan that included slashing tax breaks, it was beaten down in the U.S. House of Representatives.
It’s a debate that can’t be won. However, there may be an end run. Bruce Barlett, a policy official who served in the Reagan and George H.W. Bush administrations, supports a plan that would “simply give every family a tax exemption of $100,000, which would eliminate the income tax for 90 percent of those now filing returns…abolish the income tax for the vast bulk of Americans and replace the revenue with a 12.5 percent value-added tax.”
That won’t happen any time soon. But, as I contemplate next week’s tax filing deadline, I’m at least happy for the idea.
— Paul Tosto