Tax Expenditures Mostly Benefit Top Earners, Study Finds
The deductions, loopholes, and credits in the federal tax code disproportionately benefit the highest earners, according to a new study by the nonpartisan Congressional Budget Office.
Seventeen percent of all deductions, loopholes, and credits — collectively called “tax expenditures” — go to the top 1 percent of American households, Congress’s in-house think tank found in the report released Wednesday.
The report zeroed in on the 10 largest tax expenditures. It found that 50 percent of the total value of those expenditures benefit the top 20 percent of earners. The second 20 percent of earners received less than 20 percent of the total value, and the share of benefits continued to drop steadily among lower income levels. Thirteen percent of tax expenditures went to households in the middle quintile and just 8 percent to those in the bottom quintile.
The 10 largest tax expenditures in fiscal 2013 included tax exclusions for employer-based health insurance, pensions, capital gains on assets transferred at death and Social Security benefits; itemized deductions for state and local taxes, mortgage interest payments and charitable contributions; preferential tax treatment of capital gains and dividends; and tax credits like the earned income tax credit and child tax credit. These expenditures total more than $900 billion — or 5.7 percent of national output.