Committee for a Responsible Federal Budget

Joint Committee on Taxation Releases Latest Estimates of Tax Expenditures

Feb 1, 2013 | Taxes

Update: The link to the JCT report has been fixed.

Today, the Joint Committee on Taxation (JCT) released their annual estimate of each individual and corporate tax expenditure from 2012 through 2017. Once again, this exercise demonstrates the great need for tax reform. In 2013, JCT estimates there will be roughly $1.3 trillion in foregone revenue from all tax expenditures, with more than $1.1 trillion alone on the individual side. For comparison, we estimate that for 2013, there will be only $1.2 trillion raised from the overall individual income tax. Additionally, the CBO estimates that we will spend about $1.3 trillion in 2013 for the entire discretionary budget, assuming the sequester is repealed.

Once again, the largest tax expenditure is the exclusion of employer-provided health insurance premiums. Other usual suspects are the mortgage interest deduction, the state and local income tax deduction, and the preferential rates for capital gains and dividends. The following are other large tax preferences for 2013. Together, these tax expenditures add up to over $700 billion, a little more than half of the total cost.

Revenue Loss From Select Tax Expenditures (billions)
Employer-Provided Health Insurance Exclusion$117.3$131.7$760.4
Preferential Tax Rates on Dividends and Capital Gains$108.4$160.8$616.2
Mortgage Interest Deduction$68.5$69.7$379.0
Earned Income Tax Credit$59.0$60.9$325.9
Child Tax Credit$56.8$57.3$291.6
State and Local Deduction$43.5$50.3$277.6
Deferral of Corporate Foreign-Source Income$36.8$42.4$265.7
Step-up Basis for Capital Gains at Death$37.8$42.8$258.0
Charitable Deduction$28.8$31.0$183.0

Source: Joint Committee on Taxation

The sheer size of the tax expenditure budget once again shows the need for comprehensive tax reform. The foregone revenue pushes up rates higher than they would otherwise need to be and makes the tax code more complex and inefficient. Granted, Congress should not just eliminate all tax expenditures without a careful determination of what is worth keeping, but they could use a zero plan approach which makes explicit the trade-off between keeping tax preferences and raising rates to pay for them. This report is another reminder that Congress should act on the opportunities ahead to fix our inefficient and outdated tax code, spur economic growth, and raise revenue to reduce the deficit to help fix our still-sizeable debt problem.