Wednesday, February 6, 2013

The Biggest Tax Breaks - Where are They?

Where are the biggest tax breaks? The Joint Committee on Taxation (JCT) says most of them are for individuals. Remember 2 things about taxes: 1) if you tax corporations the cost will be passed along to the end-user in the price of the product and 2) the rich are in fact rich, but too small a group to significantly effect the federal budget deficit. Should everyone pay their fair share - of course. But, be careful how you split up the pie. It may cost you.

The article is in italics and the bold is mine. From

If Congress and President Obama are ever going to get serious about tax reform, they will have to rethink some of the biggest and most popular tax breaks.It won't be easy.

Those tax breaks mostly benefit powerful voting blocs: the middle-class and the wealthy.

The federal government gives up $1 trillion in revenue every year because of the hundreds of tax credits, deductions, exemptions and exclusions in the tax code. And the top 10 account for most of that $1 trillion.

Only one break in the top 10 is for corporations, which are allowed to defer paying federal income taxes on earnings by their foreign subsidiaries until that money is brought back to the United States. The deferral will cost federal coffers $265 billion over the next five years, according to new estimates from the Joint Committee on Taxation.

The JCT is the House-Senate panel that analyzes tax legislation. It released its latest line-by-line analysis of tax breaks on Friday.

The No. 1 break -- the health care exclusion -- will cost an estimated $760 billion over five years. The exclusion applies to the money a company contributes to help pay for an employee's health insurance coverage; the employer's contribution is treated as tax-free income to the worker.

The numerous tax breaks offered to individuals for retirement savings (in pension plans, 401(k)s and IRAs) come in a not-so-distant second at nearly $709 billion. Right after that is the lower rate on capital gains and dividends, which will cost federal coffers an estimated $616 billion over five years.

The popular mortgage interest deduction claims the No. 4 spot, with a $379 billion price tag. That's just above the $326 billion Earned Income Tax credit, the only tax break in the top 10 that primarily benefits low-income filers.

Top 10 biggest tax breaksCost to federal coffers from 2013-2017
Exclusion for work-based health insurance$760.4 billion
Retirement savings breaks$708.6 billion
Reduced rate on capital gains, dividends$616.2 billion
Mortgage interest deduction$379.0 billion
Earned Income Tax Credit$325.9 billion
Child tax credit$291.6 billion
State and local tax deductions$277.6 billion
Tax deferral on foreign subsidiary income$265.7 billion
Exclusion of capital gains at death$258.0 billion
Charitable contributions$238.8 billion
Source: Joint Committee on Taxation

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