What are the Top 10 Largest "Tax Expenditures?"


Posted by James Paul on Thursday, July 14th, 2011, 4:59 PM PERMALINK

Over the past few weeks, Sen. Hatch has spoken passionately about his belief in lower taxes for American families and small businesses. First, Hatch explained how Democrats are using underhanded tactics to raise revenue. Then, he offered a defense of the Taxpayer Protection Pledge. From there, Hatch debunked several myths that have been floating around the talking heads in Washington about “tax expenditures.”

Now, the senator from Utah has released a list of the 10 largest “tax expenditures.” The findings will be surprising to some, especially given the Democrats’ dishonest insistence that these “tax expenditures” are merely “loopholes” for millionaires and corporate jets. Here’s a look at the list:

  1. Exclusion for Employer-Provided Health Insurance.
    Representing 13 percent of tax expenditures, it’s the single largest tax expenditure. To do away with this would threaten access to health care for families and individuals that have health insurance through their employers.
  2. Home Mortgage Interest Deduction.
    Having helped millions of Americans achieve home ownership, this expenditure accounts for 9 percent of all tax expenditures.
  3. Preferential Rates for Dividends & Capital Gains.
    Take away this tax expenditure which accounts for 8 percent of tax expenditures, and the rate on dividends will almost triple in less than 18 months, and the rate on capital gains will go up 59%, also in less than 18 months.  This will discourage investment in stocks and bonds.
  4. Exclusion of Medicare Benefits.
    Accounting for 7 percent of tax expenditures, its elimination would increase taxes seniors’ Medicare benefits.
  5. Pre-Tax Treatment of Defined Benefit Pension Plan Contributions.This is a tax benefit that reduces the cost for those workers who save for retirement. It represents 6 percent of tax expenditures.
  6. Earned Income Tax Credit.
    Designed for low-income people, the Earned Income Tax Credit accounts for five percent of all tax expenditures.
  7. Deduction for State and Local Taxes.
    This deduction would hit high-tax states hardest, driving up the marginal rate of taxpayers who take this deduction by as much as 35 percent. It represents 5 percent of all tax expenditures.
  8. Pre-Tax Treatment for Contributions to a 401(k). 
    At four percent of tax expenditures, this is a significant incentive to families and individuals to save for retirement.
  9. Exclusion of Capital Gains at Death. 
    If this one goes, death would be taxed twice.  First, the decedent’s estate might get hit with the death tax.  Then the decedent’s heirs would be subject to tax again on the gain embedded in any inherited asset, should they decide to sell it.  This accounts for four percent of tax expenditures.
  10. Deductions for Charitable Contributions.
    This is the tax benefit for donations to charities other than education and health care institutions, including donations to religious institutions.  This charitable deduction represents four percent of tax expenditures.

Hatch would support elimination of tax expenditures on the critical condition that it is done as part of revenue neutral tax reform -- which is consistent with ATR’s position.

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