By Benjamin Landy

Half Of The $900 Billion In Tax Breaks Will Go To The Richest 20 Percent This Year

May 30, 2013 5:36 pm Category: Economy, Memo Pad 17 Comments A+ / A-

by Benjamin Landy, @Ben_Landy

Policy Associate, The Century Foundation, @tcfdotorg

Of the $900 billion that taxpayers can expect to save in 2013 through the 10 largest tax credits and deductions, more than half will go to the richest 20 percent, according to a new report from the Congressional Budget Office. Nearly one fifth of the $900 billion will go to the richest 1 percent, who benefit disproportionately from the deduction for charitable giving and the preferential tax treatment for capital gains and dividends.

tcf chart

According to the CBO, tax expenditures — a catchall term for the over 200 loopholes, credits, exclusions, deductions, and preferential rates that riddle the individual and corporate tax code — will add nearly $12 trillion to the budget deficit over the 2014–2023 period. But most of the expense can be attributed to just a handful of programs. This year alone, the U.S. Treasury can expect to lose $248 billion on the tax-free treatment of employer-sponsored health insurance, $161 billion on the preferential tax rate for capital gains and dividends, and $137 billion on tax-advantaged retirement accounts—all tax savings that accumulate overwhelmingly to the upper middle class.

Only 2 of the top 10 tax breaks explicitly favor working-class Americans: the earned-income tax credit ($61 billion) and the child tax credit ($57 billion). Together, these boost the after-tax income of households in the poorest quintile by nearly 10 percent; an amount comparable in percentage terms to what the richest quintile receives. But in dollar terms, the savings are worlds apart. The tax breaks received by the poorest fifth amount to about $2,000 as a percentage of after-tax income, while those received by the richest fifth are approximately 10 times higher.

So far, policymakers have been hesitant to call for the elimination of many of these tax breaks. Some, like the home mortgage interest deduction and the tax exemption for employer-provided health insurance, are extremely popular with the middle class and enjoy broad bipartisan support. Others, like the preferential tax rate for investment income, are protected by politicians’ symbiotic relationship with the so-called “donor class”—the same 1 percent who will receive 68 percent ($110 billion) of the capital gains tax benefit in 2013. (Only 7 percent will go to the bottom 80 percent.)

A more realistic scenario would be for Washington to cap deductions at a certain level. That was the idea favored by Mitt Romney, in one of his more thoughtful etch-a-sketch moments, and later supported by the Obama administration. But most proposals along those lines, including the provision for a 28 percent cap requested in the president’s 2014 budget, are either too narrow or too timid to address the massive inequalities perpetuated by the current tax code.

To do that, we’ll need something bolder. A good example is the Congressional Progressive Caucus’s “Back to Work” budget, which would combine a cap on deductions with a slew of other reforms, including new income tax brackets, a higher estate tax, a financial transactions tax, the elimination of the mortgage-interest deduction for second homes, and taxing capital gains and dividends as ordinary income. That proposal received little press coverage at the time—unsurprising given the media’s demonstrated center-right myopia. But polls suggest the majority of Americans would support the CPC’s reforms. According to a survey conducted by Business Insider in February, a plurality of respondents favored the progressive budget to the Democratic or Republican budget proposal when asked to select among the three. (The plans were labeled “A,” “B,” and “C” to avoid bias.) Nearly 50 percent of Republicans supported the CPC plan over the sequester.

Keep that in mind this summer, as Washington turns its attention to comprehensive tax reform. The American people want a fairer tax system and a less unequal society. If Congress decides once again to preserve those inequalities perpetuated by the system, it will be out of deference to the political donor class, not the interests of their constituents.

(For more on how tax expenditures work, check out Century Foundation Fellow Ed Kleinbard’s post from last April, “Yes, Hard-Working Red-Stater, the Government Is Subsidizing Your Health Insurance.”)

Half Of The $900 Billion In Tax Breaks Will Go To The Richest 20 Percent This Year Reviewed by on . by Benjamin Landy, @Ben_Landy Policy Associate, The Century Foundation, @tcfdotorg Of the $900 billion that taxpayers can expect to save in 2013 through the 10 by Benjamin Landy, @Ben_Landy Policy Associate, The Century Foundation, @tcfdotorg Of the $900 billion that taxpayers can expect to save in 2013 through the 10 Rating:

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  • Sand_Cat

    Are you listening, Bill?

  • bpai99

    This country lives by the Golden Rule: those with the gold make the rules. Ah, to be filthy rich and completely unburdened by scruples or a sense of fairness…

    • PoliticsIsNotDifficult

      Yeah, i’d rather be poor so i don’t even have to pay taxes but still get to bitch equally about those who pay for me aren’t paying enough

  • bcarreiro

    old news ……show the graphs from the bush ERROR this is why republicans fight obama on changing the tax code, create scandals is their objective. remember there should be individuals in congress who are neutral an openminded.not political parties anymore. the charitable deductions is the biggest write off like the luxorious expense accts arent enough. get to what is real but congress is oblivious. obama you have to find a way to make the agenda for congress. make them bow down …………..bitches. respectfully

  • 1standlastword

    The American Dream revised is an illustration of Social Darwinism so it goes: To those who have the most they will receive more and to those who have the least to them they shall have less
    Now for this to follow the truest path of Darwinian natural selection there has to be an extinction and I did hear the China is bidding for Smithfield Beef and who eats the most fast food.
    Alex Jones…step aside. I got the conspiracy theory of the century right here…LOL!!!!

  • ObozoMustGo

    Duhhhhh… How stupid can you leftist freak morons be? The top 20% of income earners pay over 80% of all income taxes. It stand to reason that those who actually pay the taxes are those who benefit from so-called “tax breaks”. You leftist freaks are actually stupid enough to believe this drivel written by useful idiot du jour, Benny Landy.

    Isn’t your mortgage deduction a government “give-back” by this definition? How stupid can you leftist idiots be? Do your donations to the baby murdering industry count as tax deductions? What about any charitable contributions to churches, soup kitchens, whatever? Do they count? Why should they NOT count for everyone? The deductions apply equally across the board. That’s what’s fair.

    It’s a moot point anyway. Obozo’s Gestapo… errr ….. the IRS needs to be completely abolished and a flat tax system with NO deductions should be put in place. Everyone pays the same rate on income over say $35K, nothing up to that point. We all are treated exactly the same under the law. That’s fair. No arguments because no one is treated better or worse. Plus we’d save hundreds of billions getting rid of that corrupt Gestapo-like agency in costs to the agency and savings in the economy.

    Have a nice day!

    “If a tax-rate cut brings in more revenue, the rates weren’t cut enough.” — Milton Friedman

  • Leonard Jay

    The mortgage interest deduction is a taxpayer subsidy for million-dollar real estate and second homes. It should be eliminated. Of course it’s popular, as would be a tax deduction on credit card interest and new cars. If you you can’t afford to buy something, don’t buy it.

  • RobertCHastings

    Go figure. Who’d a thunk?
    Reducing the credit for charitable donations is not going to reduce the monies pulled in by legitimate charities, for most of those are supported by the middle class anyway. The one deduction whose repeal will severely damage the middle class is the deduction for mortgage interest payment, which virtually everyone who is buying a home uses, and which saves a nice chunk for a lot of homeowners. The current Tax Code could easily be reduced from its current 78,000 pages by firstly eliminating those deductions directed toward individuals or small groups, secondly getting rid of the complex formulas under which corporations are taxed and giving them a graduated set of rates like the rest of us labor under, thirdly eliminating the estate tax which, in its current form, inappropriately, applies only to the very wealthy and brings in a relatively small amount of income, eliminate ALL except targeted deductions that can be used by ALL taxpayers. The large majority of our current Tax Code is MEANT to benefit the wealthy by targeting tax relief toward the few who actually make and spend enough to qualify for certain deductions – ie. -NOT the middle class.

    • demhack

      No charities are supported mainly by Republicans. Dem charities are funded by other people’s taxes

      • RobertCHastings

        The first one that comes to mind is the Bill and Melinda Gates Foundation, funded by the vast wealth of Bill and Melinda Gates, who are NOT Republicans. Warren Buffett, also, supports many charities, and he is NOT a Republican. The Kennedys initiated and continue to support the Special Olympics.

  • anononodon

    We should strip the tax code of ALL deductions. Every single one of them.

    But people like Michael Keenan wouldn’t like that because these deductions unfairly benefit the rich. He complains about how much taxes the rich paid, but forgets that it’s not about the total dollar amount, but the percentage of your income that it takes away.

    Meanwhile rich people enjoy benefits every time they turn around. Let’s take a speeding ticket for example. If a speeding ticket was a percentage of my income, it would be maybe 1 percent of my yearly income, however for someone who is rich, that would be .1 percent of their income. That would be like if a speeding ticket cost $30 instead of 300. 30 bucks, not a big deal to me, 300 bucks, that’s my car payment.

    Obviously the same ticket is much more painful to me than to the rich guy.

    So the fact that rich people pay the majority of taxes is irrelevant because it ends up being less painful to their wallet in the long run.

    Flat tax across the board for everyone with zero deductions.

    And for speeding tickets… community service for everyone.

    But the rich douche bags would never have it that way.

    Too bad Mr. Carnegie Mellon is too stupid to figure this out. Perhaps he should go back to high school.

    • demhack

      Tell that to Obama who is always whining about paying your fair share and yet his effective tax rate was 19% far less than his secretary

      • anononodon

        Go back to high school hackboy. The president doesn’t write the laws, congress does.

        Don’t let facts get in your way though.

      • anononodon

        Spokesman Jay Carney said that the president believed he should pay more in taxes and noted that he would pay more under other proposed policies, notably the administration’s proposal to endPresident George W. Bush’s tax cuts for couples earning more than $250,000.

        Tell it to bush.

  • demhack

    and $1.5 Trillion will go to those who don’t pay taxes or are illegal

  • PoliticsIsNotDifficult

    How fucking stupid can a post get. The bottom 50% has NO income tax liability. This means EVERY tax cut will go to the top 50%. 20 percent of the richest pay 80% of all fucking taxes anyway (or more..) idiots who pay no taxes bitching about how the people who fund their bullshit lifestyle don’t fund it enough, classic.

    I thought the left were pretty stupid with the stuff they wrote but come on, this is a whole new level

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