Over $1 Trillion in Tax Breaks Are Detailed in New Report
by Jessica Schieder, 9/17/2013
Tax breaks cost the federal government approximately $1.13 trillion in fiscal year 2013, according to a new report by the National Priorities Project (NPP). That is just slightly less than all federal discretionary spending in FY 2013 combined.
For instance, corporate tax breaks totaled some $108 billion this year alone, dwarfing the $68 billion the federal government spent on education.
Also known as “tax expenditures,” tax breaks represent the amount of taxes the government does not collect from individuals and corporations in order to incentivize certain behavior. Nonetheless, from a budgetary perspective, they affect the government deficit exactly as government spending impacts the deficit.
For every dollar the government does not collect in taxes, there is one fewer dollar to support education, build bridges, and ensure the safety of our food.
The wealthy disproportionately benefit from tax expenditures, according to NPP’s analysis.
The special tax rate allowed on capital gains and dividends is an example of a tax expenditure overwhelmingly used by wealthy individuals. Approximately 82 percent of individuals who took advantage of this tax break in the last year were in the wealthiest five percent.
In the extreme, this exploitation of tax breaks meant that more than 4,000 individuals in the wealthiest one percent owed nothing in taxes in 2013. For a two-person household, this means individuals with incomes of $462,500 and above were exempt from paying taxes.
To be clear, not all tax expenditures are necessarily bad or unequal. Tax expenditures on the earned income tax credit are meant to benefit those in the lowest income brackets and may ease the burden of taxation on the vulnerable. However, as highlighted by the report, the direct benefits of big-ticket tax expenditures flow disproportionately to the wealthy.
NPP states that there is insufficient oversight to ensure tax expenditures serve their intended purpose effectively – something that should be addressed. According to a recent GAO report, “Ensuring the transparency of more than $3.7 trillion in federal spending annually, including … $1 trillion in forgone revenue from tax expenditures is an important national goal.”
While sequestration and other proposed budget cuts have asked our nation’s most vulnerable to make hard choices, this report highlights the continued subsidization of those least in need through tax breaks that perhaps should be reexamined. Now is a good time for such a critical review as Congress begins evaluating potential tax reforms.