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Rich benefit most from tax breaks

By Kay Bell · Bankrate.com
Thursday, May 30, 2013
Posted: 12 pm ET

It's no secret that tax expenditures -- that's the legislative term for what you and I know as tax deductions, credits and income that's exempt from taxation -- keep a lot of money out of Uncle Sam's hands.

The Joint Committee on Taxation regularly looks at what these uncollected tax amounts cost the U.S. Treasury. Now another report, this time from the Congressional Budget Office, or CBO, confirms the lost revenue.

For 2013, the cost of 10 of the largest tax expenditures comes to around $900 billion.

However, the difference in the new CBO analysis is that it puts the tax breaks and their dollar amounts in a taxpayer context.

The CBO says that more than half of that $900 billion in tax breaks benefits the wealthiest 20 percent of taxpayers.

The congressional number crunchers reached that result after examining how the 10 tax expenditures are distributed among households with different amounts of income. That explains the document's somewhat ponderous name, "The Distribution of Major Tax Expenditures in the Individual Income Tax System."

Categorizing tax breaks

The tax breaks in the CBO report fall into four categories.

There are exclusions from taxable income, which include employer-sponsored health insurance, net pension contributions and earnings, capital gains on assets transferred at death and untaxed portions of Social Security and Railroad Retirement benefits.

Three tax breaks fall in the itemized deductions area: certain taxes paid to state and local governments, mortgage interest payments and charitable contributions.

Preferential tax rates on capital gains and dividends got its own category in the CBO study. This still accounts for much lost revenue despite being increased in 2013 as part of the "fiscal cliff" tax bill, officially known as the American Taxpayer Relief Act, from 15 percent to 20 percent for higher income individuals.

Finally, two tax credits are among the costliest expenditures, the Earned Income Tax Credit, or EITC, and the child tax credit. The child tax credit also was part of the January tax bill, being permanently set at $1,000 per kid.

As expected, CBO estimates show that more than 90 percent of the benefits of lower tax rates on capital gains and dividends this year will go to households with the highest income.

At the other end of the earning spectrum, about half of the benefits of the EITC will go to households in the lowest income sector.

Again, the demographics of those and the other tax break benefits are not surprising. But the CBO's data could add some oomph to what is likely to be a lively debate when Congress finally does get around to talking about tax reform.

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Veteran contributing editor Kay Bell is the author of the book "The Truth About Paying Fewer Taxes" and a co-author of the e-book "Future Millionaires' Guidebook."

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3 Comments
gary stankus
February 25, 2014 at 11:19 pm

First of all HOGWASH,tell me what people are you talking about that don't pay taxes.Are you talking about people who don't pay payroll tax don't pay excise tax,don't pat state tax,don't pay gas tax,don't pay city income tax,don't pay property tax etc etc etc etc the rich pay all the taxes? If they pay all the taxes,can you tell what tax rate they pay on the money they hide on a 5 foot by 5 foot island offshore from the country they live in? You Republican's think you have all the people fooled,but you are nothing but Traitors to U S A !!!!!

OhPlease
August 26, 2013 at 5:19 pm

Did the study include income that is excluded due to the progressive tax rates? In other words, did it look at what the taxes would be if we all paid the same percentage of our income, and calculated how much NOT doing that saves low income earners? No? Really?

Hogwash
May 31, 2013 at 12:09 pm

Your reporting failed to mention the high income earners pay proportionally the most taxes, and thus it would follow that proportionally they would receive the most benefit from tax breaks. Also, a large percentage of the population does not even pay taxes, so that large percentage would not receive tax breaks. Critical readers appreciate critical reporting rather than a reporter simply regurgitating a CBO report, without pointing out the flaws. Lazy. Thank you for feeding into the liberal agenda and misguiding the low information voter.