• August 2, 2014

CBO: Wealthy get majority of savings on tax breaks

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Posted: Sunday, June 2, 2013 4:30 am

WASHINGTON — The 10 largest breaks in the U.S. tax code will save taxpayers more than $900 billion this year, with just over half the benefits flowing to the richest 20 percent of households, congressional budget analysts said Wednesday.

And the richest 1 percent of households, those with at least $327,000 in annual income, get an especially big haul — about 17 percent of the total savings, according to the report by the Congressional Budget Office.

Democrats seized on the new analysis, saying it provides fresh support for President Barack Obama’s claim that limiting tax breaks for the rich offers a more sensible path to deficit reduction than sharp cuts to agency budgets, known as the sequester. The sequester, which took effect March 1, will cut U.S. agency spending by roughly $42 billion through Oct. 1.

Rep. Chris Van Hollen of Maryland, the senior Democrat on the House Budget Committee, noted the recent announcement that schoolteachers of children of active-duty military families at Fort Bragg, N.C., will be furloughed for five days in the fall because of the cuts.

“We think it’s important to decide whether we want to prioritize education for the kids of our servicemen and women or tax expenditures for the top 1 percent,” Van Hollen said.

Republicans, too, welcomed the report, saying it sheds new light on potential policy choices as lawmakers in both parties consider a comprehensive overhaul of the tax code. While Democrats want to limit tax breaks to generate new revenue for the government, Republicans want to return the money to taxpayers in the form of a simpler code with lower rates for everyone.

“This CBO report will help the American people and their elected representatives in Congress fully understand who benefits from which tax expenditures as we move toward a comprehensive tax overhaul,” said Antonia Ferrier, spokeswoman for Sen. Orrin Hatch (Utah), the senior Republican on the Senate Finance Committee.

The tax code is littered with a profusion of deductions, exclusions and credits that serve to reduce federal tax bills mainly for individuals, but also for corporations. The 10 largest breaks affect individual tax bills and taken together will cost the Treasury roughly $925 billion this year, the CBO said, making them more expensive than any of the biggest government spending programs — including Social Security, Medicare and the military.

According to the CBO, the biggest tax breaks by dollar value are the tax-free treatment of employer-provided health insurance ($248 billion), preferential rates for dividends and capital gains ($161 billion) and tax-free contributions to retirement savings ($137 billion). Deductions for state and local taxes ($77 billion), mortgage interest ($70 billion) and contributions to charity ($39 billion) are also among the top 10, as is the tax-free treatment of capital gains on assets transferred at death ($43 billion).

All of those breaks primarily benefit wealthy households, according to the CBO. Rounding out the top 10 are three breaks that primarily benefit lower-income households: the tax-free treatment of most Social Security benefits ($33 billion), the child tax credit ($57 billion) and the earned-income tax credit ($61 billion).

Some argue that it may be reasonable for the rich to receive a large portion of the benefit from federal tax breaks since they pay an outsize share of federal taxes. According to the independent Tax Policy Center, the richest 20 percent of households paid nearly 70 percent of federal taxes last year.

But the CBO noted that tax breaks are essentially equivalent to government spending, intended to encourage and subsidize various behaviors, such as buying a home, saving for retirement and giving to charities. The rich are likely to engage in those activities even without such “financial assistance,” raising the question of whether that money could be better spent on other priorities.

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1 comment:

  • barbie500 posted at 12:26 pm on Mon, Jun 10, 2013.

    barbie500 Posts: 128

    These breaks for the rich are benefits that reduce their taxes, it doesn't mean they don't pay any, they pay plenty. Health insureance for their employees benefits people that work for them, so they should get a break. There are people that only work and earn a certain amount each year so they can get the earned income tax credit. THEY GET MONEY BACK THEY DON'T EVAN PAY IN. HOW IS THIS FAIR? Low income also benefit for deductions on state and local taxes, mortage interest. Lets everyone do their fair share, just cause someone works hard and makes more money shouldn't mean they should pay more and support someone who sits and does nothing.