70 percent of “tax expenditure” value is used for personal savings, health insurance, housing, state and local taxes paid, and charitable contributions.
There’s a lot of talk in Washington about eliminating some of the $1.2 trillion in annual “tax expenditures” to cut the deficit. Supporters of this approach (like President Obama and Senator Coburn) pretend that this is simply another way to cut spending. It is not. Rather, every deduction and credit in the code which is repealed is a tax increase. Government spending doesn’t go down one penny (in fact, Washington will simply spend the tax hike money). If a credit or deduction is repealed, it should be replaced either with lower rates, or with new/bigger deductions or credits elsewhere. That is called tax reform, and it must be revenue neutral. Below are the biggest deductions and credits politicians talk about when they are referring to “tax expenditures.”
Having Health Insurance: $317 billion (26% of total)
Employer provided health insurance: $298 billion (includes payroll tax effects)
Medical itemized deduction: $10 billion
Self-employed insurance premiums: $7 billion
Health savings accounts: $2 billion
Personal Savings and Investment: $275 billion per year (23% of total)
401(k) pension plans: $68 billion
“Step-up” in basis on estates: $61 billion
Defined benefit pensions: $45 billion
15% capital gains/dividends rate: $39 billion
Accelerated Depreciation/Small Biz XP: $25 billion
Self employed retirement plans: $17 billion
IRAs and Roth IRAs: $16 billion
529 plans, Coverdell ESAs. & ESOPs: $4 billion
Owning a Home: $134 billion per year (10% of total)
Mortgage Interest Deduction: $99 billion
Home Capital Gains Exclusion: $35 billion
State and Local Income, Sales, and Property Taxes: $74 billion per year (6% of total)
Charitable Contributions: $53 billion per year (4% of total)