Will Congress Kill Your Favorite Tax Deductions?
Some people call them “tax loopholes,” while others prefer “tax breaks.” In Congress, they are often called “tax expenditures.”
Whichever term of art you prefer, hundreds of tax deductions, credits and exclusions that taxpayers rely on every year are at risk of being cut.
The debt-ceiling debate cast these benefits into the spotlight when Senate Finance Committee member Tom Coburn, a Republican from Oklahoma, on Monday released a budget plan he calls “Back in Black.” Sen. Coburn’s $9 trillion, 10-year package of debt-reducing measures includes $1 trillion in reclaimed tax breaks.
Introducing the plan, he sought to reframe the debate as one of cutting wasteful government spending rather than raising taxes. “Tax subsidies are socialism,” he declared.
Of course, one taxpayer’s senseless subsidy is another’s worthy incentive. The low top rate on long-term gains is supposed to encourage investment. The Earned Income Tax Credit helps the working poor, and the charitable donation deduction fosters worthy causes.
Sen. Coburn’s move was followed by another. The Senate’s “Gang of Six”—three Democrats and three Republicans, including Sen. Coburn—called for cuts in tax breaks, along with spending cuts and lower marginal tax rates. President Obama’s reaction was positive.
What matters now: These breaks aren’t cheap. All told, the top 10 individual tax breaks will cost more than $3 trillion in forgone tax revenues between 2010 and 2014, according to estimates by Congress’s Joint Tax Committee.
By contrast, the top 10 corporate tax breaks will cost only $350 billion over the same period. (This disparity isn’t surprising: the individual income tax long has raised far more revenue than the corporate income tax; it currently brings in more than four times as much.) […]