The calls for lower tax rates come along with vague calls for cutting tax expenditures or base broadening. I say vague because we rarely hear which specific deductions, exclusions or credits will be cut or scaled back. I say rarely because there are a few example. President Obama's FY2013 budget calls for cutting back on some preferential rules for oil, gas and coal producers.
Politics is a likely reason for the vagueness. I suspect that most voters think the cuts would be for corporations because they think that is where the bulk of benefits go. But that is incorrect. Per data from the Joint Committee on Taxation, the largest tax break for individuals is the exclusion for employer-provided health insurance which costs $659.4 billion for 2010-2014. In contract, the most costly corporate tax expenditure is about 1/10 that size (it is for deferral of active income of controlled foreign corporations and costs $70.6 over the same five year period).
Here is an excerpt of a chart from the JCT report (JCX-15-11, page 25):
Clearly, to truly generate revenue to reduce both the corporate and individual rates, individual tax expenditures will need to be reduced. There are additional good reasons to reduce or eliminate many of them, such as equity/fairness, neutrality, economic efficiency and simplicity.
What politicians need to be asking is - why do 70% of individuals want to subsidize home ownership for 30% of individuals who deduct mortgage interest? Why do we spend roughly $90 billion per year to help middle and upper income individuals buy a more expensive home than they would otherwise purchase? Why do we subsidize borrowing to help someone purchase a vacation home?
But, how willing are politicians to do this when the questions are most likely to be misunderstood because the public has not been exposed to the data on the cost of tax expenditures and how inefficient and inequitable they are.
Yet, some of that may be starting. H.R. 6169 that passed in the House on August 2 refers to much of the above as spending and subsidies.
What do you think?
