In 2011, the United States received 47 percent of its
Federal tax revenue through income taxes on individuals and 8 percent from corporate
income tax. (Payroll taxes, i.e. funds
dedicated to Social Security and Medicare, provide 36 percent of Federal
receipts.) Individual income taxes provided 1,090 billion
dollars, and corporate income tax provided 181 billion dollars.
Through the years, the government has established many
exclusions (termed "tax expenditures") which permit individuals and corporations to avoid taxes on part of
their income. Congress established these
exclusions for reasons of fairness, or as incentives for certain economic or
social goals. The Washington Post
reports that there are 172 tax breaks, primarily benefiting individuals, which
deprive the treasury of over a trillion dollars of revenue each year. The table below was created from the Washington
Post interactive graphic, and show the top 73 tax breaks, using the threshold
of one billion dollars. The top 73 tax
breaks amount to nearly 1.2 trillion dollars of lost annual tax revenue, an
amount approximately equal to the 2012 Federal deficit. Over 200 billion dollars of new tax breaks
have been enacted since the year 2000.
Although each of the tax exclusions was designed to create
specific benefits to society, the cumulative result is massive complexity in
the tax code. The GAO reported that
economic distortions resulting from tax preferences cost the United States
between 2% and 5% of GDP annually.
These tax breaks are deeply ingrained in American culture. Individuals have been promised tax relief on
their retirement savings and on their home mortgages. These tax benefits are critical elements of
life-long financial planning for many individuals. Nevertheless, in the interest of simplicity,
transparency, and economic efficiency, many of these tax exclusions should be
gradually removed from the tax code.
|
Tax Break
|
Year
|
benefit
|
Billion $
|
|
Exclusion of Employer
Contributions for Health Care
|
< 1975
|
Individuals
|
173.8
|
|
Mortgage interest
deduction
|
< 1975
|
Individuals
|
88.7
|
|
401K Plans
|
2001
|
Individuals
|
62.9
|
|
Earned Income Tax Credit
|
1975
|
Individuals
|
62.5
|
|
Step-up of Capital Gains
at Death
|
1977
|
Individuals
|
50.9
|
|
Exclusion of Net Imputed
Rental Income
|
2004
|
Individuals
|
47.0
|
|
Making Work Pay Tax
Credit
|
2009
|
Individuals
|
44.0
|
|
Child Credit
|
1997
|
Individuals
|
42.5
|
|
Employer plans for Income
Security
|
< 1975
|
Individuals
|
42.2
|
|
Deferral of Income from
Controlled Foreign Corporations
|
1977
|
Corporate
|
41.4
|
|
Deductibility of
charitable contributions *
|
< 1975
|
Individuals
|
39.6
|
|
Deductibility of
non-business state and local taxes **
|
< 1975
|
Individuals
|
37.7
|
|
Capital Gains (except
Agriculture, Timber, Iron Ore & Coal)
|
< 1975
|
Individuals
|
37.6
|
|
Exclusion of Interest on
Municipal Bonds
|
< 1975
|
Individuals
|
31.3
|
|
Capital Gains Exclusion
on Home Sales
|
1997
|
Individuals
|
27.6
|
|
Treatment of qualified
dividends
|
< 1975
|
Individuals
|
23.6
|
|
Exclusion of Interest on
Life-Insurance Savings
|
< 1975
|
Individuals
|
21.2
|
|
Social security benefits
for retirees
|
< 1975
|
Individuals
|
20.3
|
|
Property tax deduction
|
< 1975
|
Individuals
|
19.3
|
|
Accelerated Depreciation
of machinery
|
1977
|
Individuals
|
17.5
|
|
Keogh Plans
|
1983
|
Individuals
|
15.0
|
|
American Opportunity Tax
Credit
|
2009
|
Individuals
|
14.4
|
|
Individual Retirement
Accounts
|
< 1975
|
Individuals
|
13.9
|
|
Deduction for US
Production Activities
|
2004
|
Corporate
|
13.8
|
|
Exclusion of benefits and
allowances to Armed Service Personnel
|
< 1975
|
Individuals
|
13.3
|
|
Exception from Passive
Loss Rules for $25,000 of Rental Loss
|
1987
|
Individuals
|
10.9
|
|
Credit for Homebuyer
|
2008
|
Individuals
|
10.4
|
|
Deductibility of Medical
Expenses
|
< 1975
|
Individuals
|
10.0
|
|
Social security benefits
for disabled workers
|
< 1975
|
Individuals
|
7.2
|
|
Exclusion of
workers'compensation benefits
|
< 1975
|
Individuals
|
7.0
|
|
Expensing of Certain
Small Investments
|
1993
|
Individuals
|
6.7
|
|
Self-employed Medical
Insurance Premiums
|
1998
|
Individuals
|
6.2
|
|
Credit for Low-Income Housing
Investments
|
1986
|
Corporate
|
6.0
|
|
Credit for Energy
Efficiency Improvements, existing homes
|
2005
|
Individuals
|
5.5
|
|
Exclusion of income
earned abroad (citizens)
|
< 1975
|
Individuals
|
5.5
|
|
Carryover Basis of
Capital Gains on Gifts
|
1988
|
Individuals
|
4.8
|
|
Expensing of Research and
Experimentation
|
< 1975
|
Corporate
|
4.6
|
|
Deductibility of
charitable contributions; Education
|
< 1975
|
Individuals
|
4.5
|
|
Deductibility of
charitable contributions; Health
|
1977
|
Individuals
|
4.5
|
|
Exclusion of veteran's
death and disability payments
|
< 1975
|
Individuals
|
4.5
|
|
Credit for Increasing
Research Activities
|
1981
|
Corporate
|
3.9
|
|
Lifetime Learning Tax
Credit
|
1997
|
Individuals
|
3.9
|
|
Exclusion of Interest on
Hospital Construction Bonds
|
1980
|
Individuals
|
3.6
|
|
Graduated Corporate
Income Tax Rates
|
1978
|
Corporate
|
3.3
|
|
Social security for
spouses & dependents
|
< 1975
|
Individuals
|
3.2
|
|
Alcohol Fuel Credits
|
1980
|
Corporate
|
3.1
|
|
Exclusion of Employee
Reimbursed Parking Expenses
|
1993
|
Individuals
|
3.0
|
|
Exclusion of scholarship
and fellowship income
|
< 1975
|
Individuals
|
3.0
|
|
Parental exclusion for
students 19 & older
|
< 1975
|
Individuals
|
3.0
|
|
Inventory Property Sales
Source Rules Exception
|
1986
|
Corporate
|
2.9
|
|
Build America Bonds
|
2009
|
Corporate
|
2.6
|
|
Credit for Small Business
Health Insurance
|
2010
|
Individuals
|
2.6
|
|
Additional Deduction for
the Elderly
|
1986
|
Individuals
|
2.5
|
|
Exclusion of Interest on
Bonds for Private Non-Profit Educational Facilities
|
1983
|
Individuals
|
2.4
|
|
Premiums on Group Term
Life Insurance
|
< 1975
|
Individuals
|
2.0
|
|
Credit for Child and
Dependent Care Expenses
|
< 1975
|
Individuals
|
1.9
|
|
Medical Savings
Accounts/Health Savings Accounts
|
1996
|
Individuals
|
1.9
|
|
Energy Production Credit
|
1978
|
Corporate
|
1.6
|
|
State Pre-paid Tuition
Plans
|
1997
|
Individuals
|
1.6
|
|
Special Rules for
Employee Stock Ownership Plans
|
1988
|
Corporate
|
1.5
|
|
Deductibility of Student
Loan Interest
|
1997
|
Individuals
|
1.4
|
|
Discharge of Mortgage
Indebtedness
|
2007
|
Individuals
|
1.4
|
|
Employer Provided
Child-Care Exclusion
|
1983
|
Individuals
|
1.4
|
|
Low and Moderate Income
Savers Credit
|
2001
|
Individuals
|
1.4
|
|
Exclusion of Interest on
Owner-Occupied Mortgage Subsidy Bonds
|
1978
|
Individuals
|
1.3
|
|
Deferral of interest on
US Savings Bonds
|
1975
|
Individuals
|
1.2
|
|
Exemption of Credit Union
Income
|
< 1975
|
Corporate
|
1.2
|
|
Excess of Percentage over
Cost Depletion Fuels
|
< 1975
|
Corporate
|
1.1
|
|
Exclusion of employee
meals and lodging
|
< 1975
|
Individuals
|
1.1
|
|
Exclusion of Interest on
Rental Housing Bonds
|
1980
|
Individuals
|
1.1
|
|
Qualified School
Construction Bonds
|
2009
|
Individuals
|
1.1
|
|
Exclusion of certain
allowances for Federal Emp. Abroad
|
1999
|
Individuals
|
1.0
|
|
Work Opportunity Tax
Credit
|
1978
|
Corporate
|
1.0
|
|
Total Tax Expenditures >
$1 billion
|
1169.5
|
||
|
* non-health or education
|
|||
|
** other than owner-occupied homes
|
Source:
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