“Tax Expenditures” Not What They’re Cracked Up to Be Two-Thirds of Tax Deductions and Credits Are Used for Everyday Things April 11, 2011 Contact: Ryan Ellis, Tax Policy Director 70 percent of “tax expenditure” value is used for personal savings, health insurance, housing, state and local taxes paid, and charitable contributions. There’s a lot of talk in Washington about eliminating some of the $1.2 trillion in annual “tax expenditures” to cut the deficit. Supporters of this approach (like President Obama and Senator Coburn) pretend that this is simply another way to cut spending. It is not. Rather, every deduction and credit in the code which is repealed is a tax increase. Government spending doesn’t go down one penny (in fact, Washington will simply spend the tax hike money). If a credit or deduction is repealed, it should be replaced either with lower rates, or with new/bigger deductions or credits elsewhere. That is called tax reform, and it must be revenue neutral. Below are the biggest deductions and credits politicians talk about when they are referring to “tax expenditures.” Having Health Insurance: $317 billion (26% of total) Employer provided health insurance: Medical itemized deduction: Self-employed insurance premiums: Health savings accounts:
Personal Savings and Investment: $275 billion per year (23% of total) 401(k) pension plans: “Step-up” in basis on estates: Defined benefit pensions: 15% capital gains/dividends rate: Accelerated Depreciation/Small Biz XP: Self employed retirement plans: IRAs and Roth IRAs: 529 plans, Coverdell ESAs. & ESOPs: