Tax expenditures will reduce government revenue by $7.2 trillion over the next 5 years, according to recent estimates by the Joint Committee on Taxation (JCT) staff.
These provisions in the tax code reduce what individuals and corporations pay; they range from tax credits on solar panels to tax deferrals on corporate profits earned overseas. They function in many ways like direct government spending but generally receive less public attention.
The JCT calculations involved 213 different tax expenditures worth anywhere from a few million dollars to hundreds of billions over several years. The new JCT staff report estimates that tax expenditures in 2014 alone reduced federal revenue by $1.2 trillion.
Tax exclusions on employer contributions to health care programs were the largest item, totaling $143 billion. Some other large tax expenditures in 2014 include the treatment of long-term capital gains ($96.5 billion) and mortgage interest deductions ($67.8 billion).
Many of these tax breaks are quite popular. But reducing them could allow the government to simplify the tax code and raise revenues, perhaps even while lowering overall tax rates. In addition, the government could reduce some tax expenditures rather than eliminating them completely.
External links:
Estimates of Tax Expenditures for 2014-2018 (JCT)
