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Monday, April 30, 2012

Tax expenditure reform and income groups

The Hamilton Project has a nice chart showing the use of various tax expenditures (favorable tax rules) for different income groups. It is a nice way to show how different preferences often have disparate effects on different income groups, such as is true for the Earned Income Tax Credit (greatly benefiting low income workers) and the lower rate on capital gains (greatly benefiting the top 1% of individuals).

The dollar amount ("cost") of these two particular items is also much different. For 2011, the "cost" of EITC was $59.5 billion (page 44) and for the lower capital gains tax rate, it was $90.5 billion (page 37) (Joint Committee on Taxation report). This is also significant given that in the Hamilton Project chart, the EITC is shown for the bottom 20% income group and the lowered capital gain rate is mostly benefiting the top 1%.

A reminder that there are many aspects of tax expenditures to examine when Congress and President Obama get to the serious work of eliminating or reducing them.  Of course, the first thing to do would be to NAME the ones to be reduced or eliminated rather than only say we'll get rid of some.

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