The federal government will dole out more than $900 billion in the top 10 tax breaks this year, according to a report Wednesday from the Congressional Budget Office that found the benefits go disproportionately to the poor and the rich.
Indeed, the poorest 20 percent of Americans get about 12 percent of their income from the tax breaks, while the richest 20 percent get nearly 10 percent of their income from the special carve-outs, CBO said. Those in the middle get less than 8 percent of their income back in tax breaks.
CBO’s findings are likely to reignite President Obama’s call to end some of those tax breaks and spend the increased tax revenue.
“The CBO’s report shows that tax breaks are skewed in favor of the top 1 percent of Americans at the expense of other priorities,” said Rep. Chris Van Hollen of Maryland, ranking Democrat on the House Budget Committee, who said it’s time to “limit unproductive and excessive tax preferences for the very wealthy.”
The wealthy take advantage of investment tax breaks, while the poor and middle-income families will soon benefit from a new tax break to help buy health insurance under Mr. Obama’s health care law.
Over the next decade, those tax breaks, or “tax expenditures,” as they are known in Washington, will total at least $12 trillion, which is about double the total deficit the government is expected to run over the next 10 years.
But CBO cautioned that eliminating tax breaks doesn’t necessarily mean that much money comes into the government, chiefly because taxpayers alter their behavior to adapt. For example, cutting the break on capital gains taxes would lead to investors changing their investment patterns.
The biggest tax break is the nearly $250 billion the government will forgo this year by excluding payments for employer-sponsored health plans from taxable income. Another $137 billion goes to not taxing pension-plan contributions.
CBO said the top 10 tax breaks account for about two-thirds of all tax expenditures, which total more than 200, which means that overall the government forgoes more than $1.3 trillion in potential taxes each year.