cut spending in the tax code

8/7/2019 Cut Spending in the Tax Code

http://slidepdf.com/reader/full/cut-spending-in-the-tax-code 1/36www.americanprogress.o

Cut Spending in the Tax CodeWasteul Spending in the Tax Expenditure Budget is Fertile

Ground or Decit Reduction

Seth Hanlon and Michael Ettlinger March 2011


http://slidepdf.com/reader/full/cut-spending-in-the-tax-code 2/36



Cut Spending in the Tax CodeWasteul Spending in the Tax Expenditure Budget is

Fertile Ground or Decit Reduction

Seth Hanlon and Michael Ettlinger March 2011



Contents 1 Introduction and summary

3 The House continuing resolution

5 Moving to tax expenditures

9 Tax expenditures and the current budget debate

11 Potential tax expenditure cuts

23 Tax extenders

25 Conclusion

26 Appendix

27 Endnotes

28 About the authors and acknowledgements



inrdun and ummary | www.ameranrgre.

Introduction and summary

Our naion needs jobs, a srong and compeiive economy, and deci reducion.

Te way o win ha rieca is no he House o Represenaives’s coninuing

resoluion or he remaining seven monhs o scal year 2011—a bill panned

by a wide range o economiss rom across he poliical specrum as a hrea o

economic recovery and a job desroyer. And he way o ge deci reducion is

no as he House-passed bill does, o iniiae immediae cus concenraed in one

narrow area o he budge ha unds he mos criical invesmens or long-erm

economic growh.

Insead, he ocus should be on he wase ound in he larges area o spending,

an area o he budge larger han Social Securiy, Medicare, Medicaid, or naional

deense: he more han $1 rillion o ax-code spending hidden in he ederal

ax code. Dollars spen hrough he ax code in he orm o ax breaks, called

ax expendiures, are widely recognized o be he uncional equivalen o direc

governmen spending. Aer all, give a company a $1,000 check o subsidize an

aciviy, or give i $1,000 o is ax bill—he company doesn’ care.

Ye he ederal governmen reas ax-code spending very dierenly han i does

direc spending. Tis keeps ax-code spending hidden, ou o sigh o budge cu-

ers, and in a generally privileged posiion in he budge process. Ye he poenial

savings rom cuting spending hrough he ax code are subsanial. Wih he

debae raging in Washingon over spending cus, ax-code spending should be on

he able. In his repor we ideniy individual ax-code spending cus ha could

oal $64 billion in FY 2012 and $502 billion over ve scal years. I enaced, hese

cus would be ar less harmul han he $60 billion o shor-erm direc spending

cus ha have passed he House o Represenaives.

Over he nex several years geting he ederal budge deci under conrol is crii-

cal. Spending cus should be par o he soluion. Bu we need acion o show he

world o our commimen o scal responsibiliy now, bu acual deci reducion

laer. Cuting overall spending oo much immediaely would be dangerous, wih



2 cener r Ameran prgre | cu sendng n e tax cde

our economy in such ragile shape, and wih unemploymen so high. Neverheless,

i is clear ha or he governmen o have a budge i can operae under —o keep

is doors open and o keep public servans a work—he House o Represenaives

will insis ha here be a cu in overall spending levels. So le’s pu some o he

leas eecive governmen spending here is on he able—le’s look a he savings

available o axpayers hrough reducing he spending in he ax code.



te hue nnung relun | www.ameranrgre.

The House continuing resolution

Te erms o he erce debae in Washingon over spending cus have been se by

he new Republican majoriy in he House o Represenaives wih is aggressive

rs marker—he roughly $60 billion in cus in is proposal or a coninuing reso-

luion or he remainder o FY 2011. Te House bill, however, is aally awed. Is

narrow argeing o non-securiy discreionary spending—a porion o he budge

ha comprises only one-sevenh o oal ederal spending—would do grea harm

o he naion.1

Exracing ens o billions o dollars in cus rom his narrow slice o he ederal

governmen requires ha he cus run deep—much deeper han is desirable

or even pracicable. Tese cus would orce sudden, dramaic, and dangerous

reducions in he governmen services on which all Americans rely. As he Cener

or American Progress previously deailed, he cus would do grea harm o he

economy, undermine our energy securiy and innovaion, make our counry less

sae, severely damage our educaion sysem, and hur he mos vulnerable and

leas able o sacrice in our sociey.

A wide range o economiss rom across he poliical specrum, including Federal

Reserve Chair Benjamin Bernanke, ormer McCain presidenial campaign advisor

Mark Zandi, and Goldman Sachs Group Inc. predic he House spending cu bill

would cause he loss o hundreds o housands o jobs and harm oday’s economic

recovery . In sum, he cus passed by he House could pu he brakes on our eco-

nomic recovery, hur he healh o America’s communiies, and damage our uure

compeiiveness and growh.

Alhough budge balancing including spending cus will indeed have o be

addressed in he nex ew years, here is a serious quesion abou wheher poli-cymakers should be considering immediae spending cus wih he economy as

ragile i is and wih unemploymen so high, or insead be aking seps now bu or

uure deci reducion. Neverheless, i is eviden, given he views o he majoriy

in he House o Represenaives, ha any agreemen o keep he governmen up

and running will indeed have o include cus.

Extracting tens

billions o dollar

in cuts rom a

narrow slice o t

ederal governm

requires that the

cuts run deep.

http://www.americanprogress.org/issues/2011/02/investment_alternatives.html

http://www.americanprogress.org/issues/2011/02/budget_cuts_innovation.html

http://www.americanprogress.org/issues/2011/03/bad_for_your_health.html


http://www.americanprogress.org/issues/2011/02/cr_education_cuts.html

http://www.americanprogressaction.org/issues/2011/03/budget_most_vulnerable.html


http://media.washingtonpost.com/wp-srv/politics/documents/moodys022811.pdf

http://blogs.abcnews.com/thenote/2011/02/goldman-sachs-house-spending-cuts-will-hurt-economic-growth.html




http://media.washingtonpost.com/wp-srv/politics/documents/moodys022811.pdf



http://www.americanprogress.org/issues/2011/02/cr_education_cuts.html



http://www.americanprogress.org/issues/2011/02/budget_cuts_innovation.html

http://www.americanprogress.org/issues/2011/02/investment_alternatives.html




Bu here is no reason why hose cus should be so narrowly argeed a one

paricular area o spending. In paricular, he discussion should include a ype o

spending known as ax-expendiure spending, which oen escapes he scruiny i

deserves, is mosly allowed o coninue year-aer-year unouched, and is paricu-

larly likely o uncion as unjusied subsidies or special ineress.

[C]utting annual domestic spending alone won’t be enough to meet

our long-term scal challenges. . . . [I] you’re really serious about the

decitnot just spending, but you’re serious about the decit over-

allthen part o what you have to look at is unjustiable spending

through the tax code, through tax breaks that do not make us more

competitive, do not create jobs here in the United States o America.

— President Barack Obama, February 15, 2011

We need to take a long and hard look at the undergrowth o deduc-

tions, credits and special carve-outs that our tax code has become. And

yes, we need to acknowledge that what Washington sometimes calls

tax cuts are really just poorly disguised spending programs that ex-

pand the role o government in the lives o individuals and employers.

Speaker John Boehner (R-OH), August 24, 2010

In the quarter century since the last comprehensive tax reorm, Wash-

ington has riddled the system with countless tax expenditures, whichare simply spending by another name.

The National Commission on Fiscal Responsibility and Reorm,

The Moment o Truth (Report o the Chairmen o the President’s fscal

commission: Erskine Bowles and ormer Sen. Alan Simpson, Dec. 2010).

Many tax expenditures substitute or programs that easily could be

structured as direct spending. When structured as tax credits, they

appear as reductions o taxes, even though they provide the same

type o subsidy that a direct spending program would, and like a

spending program, must be nanced either by tax increases, cuts in

other spending programs, or increases in the decit that pass the costto uture generations.

Bipartisan Policy Center, Restoring America’s Future (Report o the Debt

Reduction Task Force chaired by ormer Senator Pete Domenici and Dr. Alice

Rivlin, November 2010).

[W]e must admit that not all o [recent] spending has been thro

increased appropriations or expanded entitlements; much o it

been through the backdoor prolieration o “tax expenditures”

provisions that technically reduce someone’s tax liability, but th

reality amount to spending through the tax code.

House Ways and Means Chairman Dave Camp (R-MI), November

[A]ll o the deductions, exclusions, credits, and set-asides in the

tax code . . . are costing the Treasury more than a trillion dollars

revenue a year. That matches all o domestic discretionary spen

And many are no diferent than traditional spending programs

are simply spending through the tax code.

Senate Budget Committee Chairman Kent Conrad (D-ND), February

“When it comes to spending cuts, Congress is looking in the wro

place. Most ederal nondeense spending, other than Social Sec

and Medicare, is now done through special tax rules rather thandirect cash outlays. These tax rulesbecause they result in the

revenue that would otherwise be collected by the government

equivalent to direct government expenditures. . . . I Congress is

serious about cutting government spending, it has to go ater m

o them. . . . Cutting tax expenditures is really the best way to re

government spending.

Dr. Martin Feldstein, The ‘Tax Expenditure’ Solution

National Debt, Wall Street Journal, July 2

What they are saying about tax expenditures



Mvng ax exendure | www.ameranrgre.

Moving to tax expenditures

Te savings o axpayers available by cuting “ax expendiures” are subsanial.

Wheher in he orm o special exempions, deducions, or credis, ax expen-

diures are essenially ederal-spending programs adminisered by he Inernal

Revenue Service. While mos governmen programs promoe policy goals by

spending axpayer money direcly, IRS programs promoe many o he same goals

by disribuing special ax breaks.

Te ederal governmen, or example, could subsidize oil drilling by providing $4billion in direc grans or conracs o oil and gas companies or drilling his year,

or $40 billion over he enire decade. Or, i could—as he ederal governmen

does oday—provide ha same $4 billion-a-year, $40 billion-a-decade hrough ax

breaks worh he same amoun and available o hose companies engaged in oil

and gas producion.

Economiss have recognized or decades ha here is no meaningul dierence

beween ax expendiures and programs ha spend money direcly: Wheher ha

annual $4 billion subsidy or oil and gas—a a ime when oil companies are again

posing record pros—is spen direcly or hrough a special ax code provision,

he end resul is ha he oil companies are $4 billion beter o every year. And he

public purse is ou he exac same amoun, which in urns means ha he ederal

budge deci is ha much bigger.

Forunaely, he ac ha ax expendiures are governmen spending is more and

more widely recognized by leaders o all poliical sripes, inside and ouside o

governmen. (see box on page 4)

Wih a combined cos in FY 2010 o $1.02 rillion, ax expendiures consiuea bigger par o he budge han Social Securiy, Medicare, Medicaid, or naional

deense.2 Tey are more han wice as large as all non-securiy discreionary pro-

grams combined. (See able on page 6)

Economists hav

recognized or

decades that th

is no meaningu

dierence betw

tax expenditure

and programs

that spend mon

directly.

http://www.americanprogress.org/issues/2011/02/profits_v_prices.html







Sill, hey receive ar less scruiny han direc-spending programs. As he Cener or

American Progress emphasized in is repor “Governmen Spending Undercover,”

here are several reasons why ax expendiures oen y under he radar.

Firs, ax expendiures are no periodically reviewed, unlike he budges o indi-

vidual ederal governmen deparmens and agencies, which are se by Congressannually hrough he appropriaions process. Mos ax expendiures are perma-

nen xures o he ax code wih coss ha end o dri upwards over ime. In his

sense, mos ax expendiures are comparable o enilemen spending because he

overall budge cos is no se periodically by Congress once he provision is in law

bu insead deermined by acors beyond Congress’s conrol, such as he number

o people qualiying or benes (in his case ax benes) in any given year.

In realiy, Congress ypically exercises litle conrol over ax expendiure coss.

Some ax expendiures “sunse,” meaning hey expire aer a cerain ime period,

bu Congress has ypically packaged hese provisions ogeher and renewed hemevery year wih no ormal review process. (Tese so-called “ax exenders” are

discussed urher below.)

Second, ax expendiures do no have o compee agains oher spending priori-

ies o he relevan congressional commitees. Appropriaions commitees mus

work wihin he consrains o he budge resoluion, which provides allocaions,

divided ino sub-allocaions according o subcommitee. Auhorizing commi-

ees mus receive a budge o pass legislaion increasing spending in heir areas. In

conras, ax expendiures need only be approved by he wo ax-wriing commi-

ees (he House Ways and Means Commitee and Senae Finance Commitee).

Te ax-wriing commitees have he singular auhoriy o spend money wihou a

budge allocaion.

Finally, because ax expendiures are oen sold as ax cus, hey enjoy a polii-

cally avored saus. Despie here being no meaningul subsanive dierence

beween spending hrough he ax code and direc spending, ax expendiures are

no couned as spending in he budge; heir eecs are hidden as reducions in

revenues. Fiscal cos esimaes are published only or inormaional purposes in

he Analyical Perspecives secion o he budge.3

No surprising, given is privileged saus in he budge process, ax-code spend-

ing has prolieraed over ime. Te las ime Congress signicanly reduced ax-

code spending was in he ax Reorm Ac o 1986. A recen analysis by he Join

Commitee on axaion ound ha he number o ax expendiures increased by

Breaking down the

federal budget

Federal spending, iscal year

2010 in $ billions

Deense and security 815

Medicare and Medicaid 719

Social Security 701

Other mandatory programs 644

Discretionary programs 491

Interest on the debt 196

Tax expenditures 1,025

Source: Budget o the United States Government,Fiscal Year 2012, Tables S-4 and 17-1.

http://www.americanprogress.org/issues/2010/04/government_spending_undercover.html

http://www.americanprogress.org/issues/2010/04/government_spending_undercover.html



Mvng ax exendure | www.ameranrgre.

60 percen since hen. Some ax expendiures have come and gone in he inerven-

ing ime, bu as he Join Commitee observed, “in general, ax expendiures, once

adoped, end o say in place.”4

ax expendiures have no only prolieraed in number, bu also in cos. Te scal

cos o ax expendiures roughly doubled rom $508 billion in 1988 (he rs ullscal year aer ax reorm) o $1.025 rillion in 2010 (in consan 2010 dollars).5

In his hidden $1 rillion world o ax expendiures, here are many ax-spending

programs ha serve litle policy purpose or have long oulived heir eeciveness.

Te ollowing examples only scrach he surace.

Oil and gas subsidies

Te oil and gas indusry is one o he mos proable indusries on earh. Te opve mulinaional companies have repored nearly $1 rillion in pros his decade.

And ye he oil and gas indusry sands o collec abou $4 billion in ax-code subsi-

dies in he coming year and nearly $40 billion over he res o he decade.

wo o he major subsidies in he ax code—expensing o inangible drilling coss

and “percenage depleion”—were enaced in 1916 and 1926, respecively, a a

ime when oil exploraion was a edgling indusry. oday, he oil and gas indus-

ry is a maure, exremely proable indusry enjoying windalls rom oil prices

exceeding $100 per barrel. Te indusry simply does no need $4 billion in special

ax breaks as an incenive o do wha i already does.6

Moreover, our counry simply canno aord o coninue his waseul spending a

a ime when Congress is considering cuting criically imporan public services

including energy assisance or low-income amilies.7 Cuting ax spending can

yield savings o axpayers now and coninually over he coming decade o help

reduce our ederal budge deci.

Tax breaks for vacation homes and yachts

Te ax code currenly allows a ax break or ineres paid on morgages used o

buy vacaion homes and, incredibly, loans or he purchase o yachs. Te deduc-

ion ha he ax code allows or morgage ineres is inended o promoe home-

ownership, bu allowing axpayers o claim i on boh a primary residence and




a vacaion propery or yach does no, by deniion, expand homeownership.

I simply does no serve an imporan public purpose—i jus arbirarily avors

cerain indusries and people over ohers.

Tis is also a prime example o an inequiable ax subsidy—giving he wealhies

an exra ax break on heir vacaion properies or yachs while regular homeown-ers who can’ aord such luxuries can claim only a deducion on one home and

reners receive no deducion a all. Te allowance o he deducion or boa loans

is paricularly appalling. Under curren ax rules, boas can quali y as second

homes eligible or he ax break only as long as hey conain basic living accommo-

daions including sleeping spaces, bahrooms (heads), and kichens (galleys)—so,

in oher words, only large boas qualiy. A a ime o serious scal challenges,

policymakers mus ask wha possible public purpose is served by spending public

unds o subsidize boa loans or sizable yachs over oher public purposes.

The carried-interest loophole

A special loophole permis he managers o hedge unds and privae equiy unds

o pay preerenial capial gains raes on much o heir compensaion. Tis subsidy

or cerain occupaions resuls in some o he riches people in America enjoying

huge ax benes ha are unavailable o middle-class Americans wih oher jobs.

Te carried-ineres loophole is an egregious ax subsidy, and represens waseul

spending hrough he ax code a is wors.

Tese are only he mos sriking examples o waseul ax spending. Buried in he

ax code are scores o oher quesionable provisions, as we deail urher below

in his repor. I policymakers are looking o cu waseul spending, hey should

bring some long overdue budge scruiny o ax expendiures.

http://www.discoverboating.com/buying/financing/taxdeduct.aspx

http://www.discoverboating.com/buying/financing/taxdeduct.aspx



tax exendure and e urren budge debae | www.ameranrgre.

Tax expenditures and the current

budget debate

Unorunaely, ax expendiures have largely been ignored by he curren budge

debae, which has ocused almos exclusively on nonsecuriy discreionary spend-

ing. Graned, reining in ax expendiures halway hrough he year poses logisi-

cal challenges. Amending ax provisions designed o las an enire ax year, o be

reconciled on an annual ax orm, is complicaed. Ye in many cases savings could

be obained simply by making he subsidy in quesion available only or aciviy

up o a cerain dae.

Furhermore, mid-year cus in direc spending also pose dauning pracical and

logisical challenges. I is difcul o cu o any public-spending program on a

dime—here are conracs ha mus be ullled, projecs in mid-sream, and

workorces in place. In ac, according o he Congressional Budge Ofce, he

“$60 billion” in cus ha he House Republicans propose would only save $5 bil-

lion in 2011—wih addiional savings no realized unil 2012.8 Tus, he iming o

budge savings should no preclude puting ax expendiures on he able as par

o he curren budge discussion or FY 2011.

Tis repor oers a menu o ax expendiures ha are much beter candidaes or

reducion or eliminaion han many o he vial public services argeed by he

House coninuing resoluion, H.R. 1. Te ull-year savings would amoun o abou

$64 billion in FY 2012 i ully phased in. I is likely, however, ha ransiion rules

would have o be pu in place in airness o axpayers who had aced in reliance on

he exising rules and o make compliance possible.

Te ve-year savings would be $502 billion (also less han he cos o ransiion

rules, which would be less signican over he longer period). Unlike he proposed

cus o ederal governmen deparmen and agency budges or he curren scalyear ha he House has passed, he cus o ax expendiures would be permanen,

wih budge savings sreching over many years.

Te savings rom hese ax expendiures could be used or eiher deci reducion

or higher prioriy spending. Given he sae o he economy we would srongly

This report oer

a menu o tax

expenditures

that are much

better candidate

or reduction or

elimination than

many o the vita

public services

targeted by the

House continuin

resolution, H.R.




recommend ha he bulk o he savings in he near erm be used or higher prior-

iy, job-creaing invesmens—and only laer, aer he economy is more rmly

on is ee and unemploymen is down, or deci reducion. Neverheless, i ne

spending cus are he order o he day now, beter hese waseul provisions han

mos o he programs argeed in H.R. 1.

We have seleced he ax expendiures lised below as sources o axpayer savings

because hey serve litle or no public purpose or are poorly designed. Noe ha

his is, by no means, a complee lis o ax-code spending provisions ha deserve

close scruiny. We have ocused on a narrower lis o provisions where savings

could sar o be realized relaively quickly. Tese are also mosly provisions ha

are eiher included in he presiden’s budge proposal or in he prior CAP publica-

ion “A Tousand Cus: Wha Reducing he Federal Budge Deci Trough Large

Spending Cus Could Really Look Like.”

o be sure, no all ax expendiures are creaed equal. Some serve imporanpurposes, and do so eecively and efcienly. Ohers do no. Cuting ax expendi-

ures indiscriminaely is simply unwise. As wih all spending programs, ax-expen-

diure programs should be evaluaed regularly or eeciveness, and policymakers

should use hose perormance evaluaions as he basis or smar budgeing.

http://www.americanprogress.org/issues/2010/09/thousand_cuts.html






Menu enal ax exendure u | www.ameranrgre.

Potential tax expenditure cuts

Oil and gas industry tax breaks

As discussed above, he ax code doles ou $4 billion in annual subsidies o he

oil and gas indusry. Tese subsidies are waseul and ineecive, and should be

eliminaed. Presiden Obama’s FY 2012 budge eliminaes eigh specic ax breaks

or he oil and gas indusry:

• Te invesmen ax credi or enhanced oil recovery projecs.• Te producion ax credi or oil and gas rom marginal wells.• Expensing o inangible drilling coss.• Te deducion or qualied eriary injecan expenses.• Te excepion o he passive-loss limiaion rules or working ineress in oil and

naural gas properies.• Percenage depleion or oil and naural gas wells.• Te domesic manuacuring deducion or oil and naural gas companies.• Te geological and geophysical amorizaion period or independen producers

is increased o seven years.

Eliminaing all eigh o hese ax expendiures would mean immediae savings or

axpayers o $22.8 billion beween scal years 2012 and 2016. (see char)

Tax breaks for the coal industry

Te presiden’s FY 2012 budge also eliminaes our separae ax breaks or he

coal indusry:

Eliminate oil and

gas tax breaks,

combined

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$3,472 $5,360 $4,858 $4,601 $4,576 $22,867

Source: OMB, Budget o the United States Government, Fiscal Year 2012, Table S-8




• Expensing o exploraion and developmen coss• Percenage depleion or hard mineral ossil uels• Capial gains reamen or royalies• Te domesic manuacuring deducion or coal and oher hard mineral ossil uels

Eliminaing hese our ax breaks would save axpayers $136 million in FY 2012and $1.1 billion over he nex ve scal years.

Business inventory methods

Te presiden’s budge cus special ax provisions ha allow companies o choose

he mos avorable mehods or valuing heir invenory and cos o goods sold.

Specically, he proposal would require axpayers using he “las-in-rs-ou”

mehod, or LIFO, o ransiion o he rs-in-rs-ou mehod, or FIFO. Te

proposal would also eliminae he use o he lower-cos-or-marke, or LCM, and

subnormal goods invenory accouning mehods.

Eliminaing hese wo ax breaks would save axpayers $9.2 billion in FY 2012 and

$72 billion in oal beween FY 2012 and FY 2016.

Eliminating international tax subsidies

Te U.S. ax code subsidizes oshore invesmen by U.S. corporaions by aloow-ing deerrals on overseas pros. Te ollowing reorms proposed in he presi-

den’s FY 2012 budge reduce he impac o his subsidy:

Eliminate LIFO andLCM inventory ac-

counting methods

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$9,200 $16,500 $17,300 $17,800 $11,200 $72,000

CBO, Reducing the Defcit: Spending and Revenue Options (March 2011).

Eliminate coal tax

breaks, combined

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$136 $222 $236 $249 $265 $1,108





• Deer deducion o expense, relaed o deerred income• Deermine oreign ax credis on a pooling basis• ax currenly excess reurns on inangibles ransers• Limi income shiing via inangible propery ransers• Modiy he rules or dual-capaciy axpayers

Le’s examine each o hese reorms in urn.9

Defer deduction of interest expense related to deferred income

Currenly, companies are permited o deduc expenses ha are properly allo-

cable and apporioned o oreign-source income even i ax on such income is

deerred unil laer years. Tis creaes a mismach beween income and expenses

ha amouns o a subsidy (a negaive ax rae) or invesmens ha creae oreign-

source income.10

Te presiden’s budge eliminaes his unjusiable subsidy by requiring ha

i oreign-source income is deerred, expenses ha are properly allocaed and

apporioned o ha income mus be deerred as well. Eliminaing his ax break

would save axpayers $3 billion in FY 2012 and $25 billion in oal beween FY

2012 and FY 2016.

Determine foreign tax credits on a pooling basis

A weakness in he inernaional ax rules allows U.S. corporaions o use oreign

ax credis o reduce U.S. ax on income earned abroad hrough “cross-crediing.”

Cross crediing enables companies o reduce U.S. axes on oreign income by

selecively repariaing earnings while deerring income in low-ax counries,including ax havens.

Inernaional ax expers have called cross-crediing “he equivalen o he U.S.

governmen giving he [corporaion] a gran in he amoun o he U.S. residual ax

Defer deduction of

interest expense

related to deferredincome

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$2,986 $5,138 $5,396 $5,636 $5,861 $25,017





eliminaed.”11 Te presiden’s FY 2012 budge proposal addresses cross-crediing

by deermining oreign ax credis on a pooling basis.

Eliminaing his ax break would save axpayers $2.6 billion in FY 2012 and $22

billion in oal beween FY 2012 and FY 2016.

Transfer pricing

Anoher way our curren ax code subsidizes oshore invesmen is hrough weak

rules governing “ranser pricing.” Muliple sudies, including repors by he U.S.reasury Deparmen and he nonparisan congressional Join Commitee on

axaion, nd signican evidence ha mulinaional corporaions use ransac-

ions wih relaed eniies o shi income, or ax purposes, ou o he Unied

Saes ino low-ax counries. A U.S. corporaion, or example, migh shi income

abroad by selling or licensing a valuable inangible asse such as a paen or

ormula o an overseas afliae a an aricially low price. Te corporaion hen

enjoys he bene o deerred axes on he pros earned by he afliae.

A proposal in he presiden’s FY 2012 budge would resric he use o such meh-

ods by ensuring ha excess reurns rom such ransacions are no ax-deerred.

Te presiden’s budge or he coming scal year also plugs gaps in he curren

rules on ransers o inangible propery by applying hem o valuable business

asses such as workorce in place, goodwill, and going concern value.

Eliminaing hese ax breaks would save axpayers $1.2 billion in FY 2012 and

$10.3 billion in oal beween FY 2012 and FY 2016.

Determine the

foreign tax credit ona pooling basis

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$2,655 $4,568 $4,798 $5,011 $5,211 $22,243


FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

Tax currently excess returns

on intangibles transfers$1,204 $2,038 $2,114 $2,212 $2,280 $9,848

Limit income shifting via

intangible property transfers$29 $63 $90 $118 $148 $448





Modify the rules for dual-capacity taxpayers

Curren ax rules provide a special bene o mulinaional corporaions in exrac-

ive indusries such as oil and gas, and mining. Tese companies are allowed o

claim credis agains he axes hey have paid o oreign governmens even in some

insances where hey have received a specic economic bene in exchange orheir ax paymens, such as he righ o exrac he counry’s oil resources.

Tese ypes o corporae expenses should no be crediable. o allow a ax credi is

simply o provide a special subsidy. Te presiden’s FY 2012 budge would ensure

ha such axpayers (known as “dual-capaciy axpayers”) do no receive larger

oreign ax credis han oher businesses.

Eliminaing his ax break would save axpayers $532 million in FY 2012 and $4.5


Limit itemized deductions for top-bracket taxpayers

Some o he larges ax expendiures are “iemized deducions” inended o

subsidize cerain aciviies. One o he eecs o providing subsidies hrough ax

deducions is ha hey provide much bigger ax benes o hose in he highes

ax brackes. For a wealhy axpayer in he highes 35-percen ax bracke, a $100

iemized deducion is worh $35, bu or a axpayer in he lowes 10-percen

bracke ha same deducion is worh $10 (i he axpayer iemizes deducions).

Tis ax-code spending is no only inequiable, bu also inefcien because i

arges expensive ederal subsidies a hose who need hem he leas. Presiden

Obama’s FY 2012 budge would limi he value o iemized deducions or hose

in he highes brackes o he same ax bene ha a amily in he 28-percenbracke would receive. Tis reduces waseul ax-code spending while beter

argeing incenives.

Modify the tax rules

for dual-capacity

taxpayers

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$532 $918 $974 $1,031 $1,085 $4,540





Eliminaing his ax break would save axpayers $6 billion in FY 2012 and $114


End tax subsidies for private equity and hedge fund managers

Te presiden’s FY 2012 budge would eliminae he carried-ineres loophole

deailed on page 8. Tis means hese und managers would be required o repor

he pros hey receive as compensaion or heir services as ordinary income,

subjec o he same raes paid by all oher workers.


billion in oal beween FY 2012 and FY 2016. (see char)

Remove the exception from passive-loss rules for $25,000 in rental loss

Renal-propery invesors bene rom several subsidies delivered o hem

hrough he ax code. One o hese subsidies comes in he orm o a special

dispensaion rom rules relaing o how invesmen losses are reaed. Invesmen

losses are usually subjec o specic rules designed o limi axpayers’ abiliy o use

losses as a ax sheler, bu here is a specic excepion or renal-propery invesors.



Limit itemized

deductions for top-

bracket taxpayers

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$6,008 $18,996 $26,418 $29,766 $32,696 $113,884


End tax subsidies for

private equity and

hedge fund managers

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$2,274 $2,123 $2,154 $1,927 $1,608 $10,086


Remove exception

from passive loss

rules for $25,000

in rental loss

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$13,110 $14,830 $16,730 $18,880 $20,200 $83,750





Eliminate the tax subsidy for private-purpose bonds

When an individual or corporaion buys a bond and earns ineres on ha inves-

men, he individual or corporaion has o pay axes on ha ineres. Tere are

several excepions o his rule, however, including cerain sae-and-local bond issu-

ances or privae purposes. Tese include bonds or cerain energy aciliies, waer-and-sewage plans, airpors, docks, hospials, and privae schools, among ohers.

Te exclusion rom axable income o ineres rom hese bonds amouns o a

governmen subsidy because he bond’s ax-exemp saus allows he bond issuer

o borrow a a lower cos han hey oherwise would.

Eliminaing his ax break would save axpayers $4.4 billion in oal beween FY

2012 and FY 2016, and more in laer years.12

Eliminate write-offs for corporate meals and entertainment

Eaing and enerainmen is a personal expense. I an individual akes his amily

ou o dinner, he canno deduc he cos o ha meal rom his axable income. I,

however, he akes someone ou o lunch and claims i is or a business purpose,

hen he can deduc hal o he cos o he meal.

Tis special excepion acs as an unnecessary subsidy or many people who can

bene rom expense accouns and heir guess. Allowing deducions or busi-

ness meals and enerainmen also resuls in an unknown quaniy o abuse and

raud—classiying personal expenses as “business” expenses.

Tis paricular subsidy has been reduced wice beore, and ully eliminaing i will

save approximaely $11 billion in FY 2012, and beween FY2012 and FY 2016

would save axpayers $62 billion.13

Eliminate write-offs

for corporate meals

and entertainment

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$11,127 $11,654 $12,267 $12,940 $13,586 $61,574

Eliminate the tax

subsidy for privatepurpose bonds

FY 12 cost($ millions)





Combined FY 12-16cost ($ millions)

$- $110 $662 $1,433 $2,205 $4,410




Replace state and local government tax-exempt bonds with Build

America Bonds

Te ax exclusion on sae and local governmen bonds serves a valuable pur-

pose, enabling many imporan public invesmens. Bu i is an inefcien ax-

spending program. A beter approach was ried and proven successul wih heBuild America Bonds program, launched as par o he American Recovery and

Reinvesmen Ac o 2009 bu unorunaely no renewed by Congress a he end

o las year.

Build America Bonds provided a direc subsidy o sae-and-local governmens

insead o providing an indirec subsidy hrough ax breaks or invesors. Tis

approach is more efcien because he subsidy goes righ o he governmens and

is no disored by complicaed ineracions wih ax brackes. Replacing ax-

exemp bonds wih Build America Bonds and seting he subsidy rae appropri-

aely would achieve deci reducion.

Reorming his inefcien ax-spending program would save axpayers $7 billion

in oal beween FY 2012 and FY 2016.14

Eliminate deferral of taxes on non-dealer installment sales

A special rule allows sellers o real esae or businesses o deer paying axes on

gains rom sales i hey are paid in insallmens. Ordinarily a seller would have o

recognize income and pay axes in he year he sale occurs, or alernaively, pay

ineres o make up or he bene o deerred axes. Bu sellers can deer axes on

up o $5 million rom insallmen sales unil laer years.

Congress could eliminae his ax expendiure or reduce i by lowering he $5

million limi. Te savings o axpayers in FY 2012 would be $830 million andbeween FY2012 and FY 2016 would amoun o $6 billion i his ax expendiure

were eliminaed. A lower amoun o savings could be achieved by lowering he $5

million limi.

Replace tax-exempt

bonds with direct

subsidy bonds at

25% subsidy rate

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$92 $669 $1,385 $2,077 $2,815 $7,038




Eliminate tax subsidies for agribusinesses

U.S. agribusinesses enjoy preerenial ax reamen or hree ypes o business

aciviies relaed o heir everyday operaions:

• Capial gains reamen or agriculural iems• Expensing o cerain so called muliperiod planing coss• Expensing o capial oulays or erilizer and eed

Tese are special ax subsidies ha oher indusries do no ge. Cerain porions o heir income are axed a a much lower rae, and hey are able o immediaely wrie

o many o heir coss insead o recouping hose coss over a number o years as

companies in mos oher indusries mus do.

Eliminaing hese ax subsidies would save axpayers $770 million in FY 2012 and


Eliminate the special Blue Cross Blue Shield deduction

Mos healh insurance companies have o pay income ax on heir pros, bu cer-

ain Blue Cross and Blue Shield providers are an excepion o his rule. Tese healh

insurance companies bene rom a special deducion ha similar healh insurance

companies do no enjoy, which amouns o a ederal subsidy o heir operaions.

Eliminaing his special deducion would save $680 million in FY 2012 and $3.1

billion beween FY 2012 and FY 2016.

Limit deferral of

income from install-

ment sales

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$830 $1,020 $1,230 $1,420 $1,600 $6,100

Source: OMB, Budget o the United States Government, Fiscal Year 2012, Table 17-1.

Eliminate tax subsidies for

agribusinesses, combined

(expensing o ag costs andcapital outlays, cap gains)

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$770 $860 $940 $1,090 $1,250 $4,910





Eliminate timber tax subsidies

imber companies bene rom a number o special subsidies ha are delivered

hrough he ax code. One o hese comes in he orm o a special ax rae on im-

ber sales. Anoher is imber companies’ abiliy o immediaely wrie o he coss

associaed wih imber producion even hough mos oher companies can only

wrie o similar producion coss over a number o years.

Te combined eec o hese ax breaks is ha imber invesmens can acually

be subjec o a negative ax rae.15 In oher words, he governmen is simply payingimber businesses.

Eliminaing hese ax subsidies would save axpayers $340 million in FY 2012 and


Eliminate the special tax break for horse breeders

A special ax break slipped ino he 2008 arm bill allows horse breeders o wrie

o heir invesmens (he horses) over hree years. A repor conduced by he

reasury Deparmen deermined ha racehorses acually have a much longer

useul lie.16 A aser, hree-year depreciaion schedule represens an unwarraned

subsidy or he breeders.

Esimaes are no readily available on how much axpayers would save by elimina-

ing his special subsidy.

Eliminate the special

Blue Cross Blue

Shield deduction

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$680 $590 $530 $610 $710 $3,120


Eliminate timber tax

subsidies, combined(expensing and cap gains)

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$340 $90 $370 $410 $400 $1,610





Eliminate the foreign earned-income exclusion

A special exclusion in he ax code shields up o $92,900 o income earned by

American ciizens living abroad rom U.S. axes. Because expariaes can claim

a ax credi agains heir U.S. ax liabiliy or axes paid o oher counries, he

oreign earned-income exclusion is no needed o proec hem rom “double”axaion by boh he Unied Saes and he counry where hey live.

According o he Congressional Research Service, he exclusion is o paricular

value o expariaes who pay litle or no oreign axes because i can reduce or

eliminae heir U.S. ax liabiliy.17 Pu simply, he exclusion “subsidizes employers

sending heir employees overseas.”



Eliminate health savings accounts

Healh savings accouns are ax-advanaged savings accouns or individuals wih

high-deducible healh plans. Healh savings accouns are inended o help users

pay or healh coss, bu hey have largely become ax shelers or he wealhy.

Individuals may claim a riple ax bene:

• A deducion or conribuions o an HSA beore spending anyhing on healh care• ax-ree accumulaion o earnings wihin he accoun• A ax-ree wihdrawal o pay or healh care once i’s provided

Because o heir design, healh savings accouns are used by “higher-income indi-

viduals wih he means o pay higher deducibles and he desire o accrue ax-reesavings,” according o he Governmen Accounabiliy Ofce.18 HSAs may also

draw younger and healhier individuals o high-deducible plans, raising insurance

coss or everyone else.

Remove foreign

earned income

exclusion

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$5,400 $5,800 $6,140 $6,430 $6,730 $30,500





Eliminaing his ax break would save axpayers $2 billion in FY 2012 and $11 bil-

lion in oal beween FY 2012 and FY 2016.

Deny the deduction for vacation homes and yachts

As discussed earlier on pages 7–8, he ax code currenly allows a ax break or

ineres paid on morgages used o buy vacaion homes and loans or he pur-

chase o yachs.19 Te deducion ha he ax code allows or morgage ineres is

inended o promoe homeownership, bu allowing axpayers o claim i on boh

a primary residence and a vacaion propery or yach does no, by deniion,expand homeownership.

Eliminaing his ax break would save axpayers almos $1 billion in FY 2012 and

$6.1 billion in oal beween FY 2012 and FY 2016.20

Eliminate

MSAs/HSAs

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$1,980 $2,070 $2,210 $2,350 $2,510 $11,120


Deny mortgage int.

deduction for vacation

homes and yachts

FY 12 cost

($ millions)

FY 13 cost

($ millions)

FY 14 cost

($ millions)

FY 15 cost

($ millions)

FY 16 cost

($ millions)

Combined FY 12-16

cost ($ millions)

$986 $1,107 $1,230 $1,333 $1,437 $6,092

Source: CBO, Budget Options (2000) and authors’ calculations.




Tax extenders

Spending money through the tax code, year after year

Te ax expendiures idenied so ar in his repor do no include any o he so-

called “ax exenders.” Tese “exenders” are a group o several dozen special busi-

ness ax breaks ha are habiually renewed by Congress every year. Te exenders

include ax breaks or a wide array o indusries, including ehanol, lm-and-elevi-

sion producion, resaurans, and auo racing. Tis assormen o special subsidies

comes a a large cos o axpayers: Te mos recen one-year exension increasedhe ederal budge deci by $55 billion.

Many o hese provisions are generous subsidies o quesionable meri. Case in

poin: Te “blenders’ credi” or domesic ehanol producion will cos axpayers

nearly $5 billion his year. Ye according o he Governmen Accounabiliy Ofce,

he invesigaive arm o Congress, he credi is “ largely unneeded oday o ensure

demand or domesic ehanol producion,” which is, o course, wha he credi is

inended o do.21

Federal renewable uel sandards render he ax credi unnecessary and duplica-

ive. Moreover, wih uel sandards requiring increased use o ehanol, he credi

is projeced o become more cosly over he nex several years. For hese reasons,

GAO recenly idenied he ehanol credi as an example o an inefcien redun-

dancy in governmen.

Because he ax exenders are once again scheduled o expire a he end o FY 2011,

heir eliminaion will no reduce decis in relaion o he baseline esimaes or he

ollowing scal years. For his reason—and because he eeciveness o mos ax

exenders has no been subjec o much evaluaion—his repor does no discusseliminaing specic ax exender provisions in he conex o deci reducion.

Neverheless, he ax exenders deserve much greaer scruiny beore hey are

renewed by Congress ye again or FY 2012. Tere is currenly no sysemaic

process or reviewing he eeciveness o hese ax breaks oward heir osensible




purposes. Te provisions are ypically bundled ogeher oward he end o each

legislaive session, insered ino larger legislaion, and renewed wih litle chance

or analysis or debae.

Legislaion auhored by Rep. Lloyd Dogget (D-X) would require he nonpar-

isan congressional Join Commitee on axaion o review each o he exendersin consulaion wih he Governmen Accounabiliy Ofce and hen presen is

ndings o Congress. Tese ongoing sudies would evaluae ax exenders on he

basis o en crieria inended o provide Congress wih basic inormaion abou

heir purpose and cos-eeciveness. Te proposed sudy, or example, would

ideniy he inended purpose o each ax break and review wheher alernaive

mehods o achieving he same purpose would be more cos-eecive.

Te Dogget provision was approved by he House o Represenaives las year bu

did no secure passage in he Senae. As a resul, Congress could be ying blind

laer his year when i comes ime o decide which ax exenders should be renewedand which should be allowed o expire. Tis is an unorunae sae o aairs a a

ime when Congress mus exercise diligence wih every public dollar i spends.



cnlun | www.ameranrgre.

Conclusion

Congress is now deep in debae abou how o cu spending in he remaining seven

monhs o FY 2011. Congress also is beginning o consider how o carry hose

debaes ino he FY 2012 budge deliberaions. ax expendiures need o be on

he able or discussion or boh scal years. Te reason: policymakers simply

mus examine he more han $1 rillion in spending now hidden in he ax code.

Ta same kind o deliberaive review is needed or ax exenders due o expire a

he end o FY 2011.

Going orward, Congress o course mus coninue o ocus on deci reducion o

come o grips wih he naion’s long-erm scal and economic srengh. Indeed,

acion now on deci reducion slaed o happen several years ou, aer our econ-

omy is sronger, is warraned. Par o ha discussion mus be spending cus, bu

consideraions o spending cus mus include all areas o spending, including an area

ha is rie wih misspen dollars: he ax-code spending called ax expendiures.




Appendix

Potential tax expenditure cuts

Tax expenditure Estimated savings from tax spending cuts ($ millions)

FY 12 FY13 FY14 FY15 FY16 FY12-16

Business tax expenditure reorms in president’s budget

Eliminate oil & gas tax breaks, combined $3,472 $5,360 $4,858 $4,601 $4,576 $22,867

Eliminate coal tax breaks, combined $136 $222 $236 $249 $265 $1,108

Eliminate LIFO and LCM inventory accounting methods $9,200 $16,500 $17,300 $17,800 $11,200 $72,000

Deer deduction o interest expense related to deerred income $2,986 $5,138 $5,396 $5,636 $5,861 $25,017

Determine the oreign tax credit on a pooling basis $2,655 $4,568 $4,798 $5,011 $5,211 $22,243

Tax currently excess returns on intangibles transers $1,204 $2,038 $2,114 $2,212 $2,280 $9,848

Limit income shiting via intangible property transers $29 $63 $90 $118 $148 $448

Modiy the tax rules or dual capacity taxpayers $532 $918 $974 $1,031 $1,085 $4,540

Individual tax expenditure reorms in president’s budget

Limit itemized deductions or top-bracket taxpayers $6,008 $18,996 $26,418 $29,766 $32,696 $113,884

End tax subsidies or private equity and hedge und managers $2,274 $2,123 $2,154 $1,927 $1,608 $10,086

Other business/government tax expenditures

Remove exception rom passive loss rules or $25k in rental loss $13,110 $14,830 $16,730 $18,880 $20,200 $83,750

Eliminate write-ofs or corporate meals and entertainment $11,127 $11,654 $12,267 $12,940 $13,586 $61,574

Replace tax-exempt bonds with direct subsidy bonds at 25% subsidy rate $92 $669 $1,385 $2,077 $2,815 $7,038

Limit deerral o income rom installment sales $830 $1,020 $1,230 $1,420 $1,600 $6,100

Eliminate tax subsidies or agribusinesses, combined (expensing o ag

costs and capital outlays, cap gains)$770 $860 $940 $1,090 $1,250 $4,910

Eliminate the tax subsidy or private purpose bonds $- $110 $662 $1,433 $2,205 $4,410

Eliminate the special Blue Cross Blue Shield deduction $680 $590 $530 $610 $710 $3,120

Eliminate timber tax subsidies, combined (expensing and cap gains) $340 $90 $370 $410 $400 $1,610

End extra accelerated depreciation or horse breeders ? ? ? ? ? ?

Other individual tax expenditures

Remove oreign earned income exclusion $5,400 $5,800 $6,140 $6,430 $6,730 $30,500

Eliminate MSAs/HSAs $1,980 $2,070 $2,210 $2,350 $2,510 $11,120

Deny mortgage int. deduction or vacation homes and yachts $986 $1,107 $1,230 $1,333 $1,437 $6,092

Total $63,811 $502,265



Endne | www.ameranrgre.

Endnotes

1 in al year 2010, nneury drenary endng aled $491blln, abu 14 eren al gvernmen ulay.

2 t umman ax exendure gnre neran eebeween em. hwever, ne analy eran ax exendurend a er verall wuld aear larger neran eeare aken n aun. Lenard Burman, crer Geler, and Ertder, “hw Bg Are tal indvdual inme tax Exendure and WBene rm tem?” (Wangn: Urban-Brkng tax ply cener,2008). te $1.025 rlln gure e um al ndvdual and r-rae nme ax exendure; de n nlude ax exenduren e ayrll r g/eae ax yem, w are ubanal.

3 te Jn cmmee n taxan reare a mlar l ax exen-dure w emae.

4 Jn cmmee n taxan, “Bakgrund inrman n tax Exen-dure Analy and hral survey tax Exendure Emae”(2011).

5 GAo Analy oMB, Analyal pereve, Budge e Unedsae Gvernmen, Fal Year 1985-2011, adjued r 2010 dllar.

6 te l and ga ndury al bene rm ax break a aren’e e ndury, u a e “LiFo” aunng med ande rule r “dual aay” axayer.

7 Rard caern and sma Gand, “Amera’ hdden pwer Bll”(Wangn: cener r Ameran prgre, 2010), avalable a ://www.ameranrgre.rg/ue/2010/04/d/energyaxexen-dure.d.ter rer examned ederal energy ax exendureand nlude urer deal n e neevene e erenagedelen ax break.

8 cBo emae a drenary ulay wll al $1.355 rllnunder h.R.1 and $1.360 rlln under e m reen nnungrelun—a derene nly $5 blln.

9 tee ax de rvn are n led ndvdually a ax exend-ure by e treaury Dearmen r Jn cmmee n taxan;wever ey are negrally relaed “deerral” verea r,w ne e large ax exendure.

10 See J. cln Flemng, Jr., Rber J. pern, and seen E. say,“Wre an Exemn,” Emory Law Journal 80 (59) (2009): 116-18.

11 ibd, . 134.

12 in 2009, cBo emaed a elmnang e ax exemn r newrvae avy bnd wuld lwer de by $0 n FY 2010, $0.1blln n 2011, $0.6 blln n 2012, $1.3 blln n 2013, and $2 bllnn 2014. We aled ee emae e FY 2012-16 erd w a5 eren nreae ree nreae n e emaed revenue l

r ax exendure ver e w me erd (FY 2010-14 and FY2012-16). See ofe Managemen and Budge, “Analyal pere-ve, Budge e U.s. Gvernmen, Fal Year 2012,” able 17-1..

13 te dedun r bune meal and eneranmen n nludedn fal emae ax exendure, and a a reul ere arerelavely ew reen analye e dedun. in 1996,czen r tax Jue emaed al year 1996 be$5.5 blln. A Jn cmmee n taxan emae rm 2000 a red ange n e dedun al nen w .te emae ere exralae e czen r tax Jue emae

baed n GDp grw rm 1996 rug 2016 (aual grw andemaed grw er cBo, “Budge and Enm oulk” (January2011)).

14 cBo emae a relang new ax-exem bnd uane wdre ubdy bnd a a 15 eren ubdy rae wuld lwer ede by $0.4 blln n FY 2012, $2.9 blln n 2013, $6.0 blln n2014, $9.0 blln n 2015, and $12.2 blln n 2016. See cBo, “Redu-ng e De: sendng and Revenue on” (2011). our emae baed n e rrnal budge avng w a ubdy rae 25eren, aumng a a 28 eren rae arxmaely revenueneural. see Dearmen e treaury, “General Exlanan eAdmnran’ Fal Year 2012 R evenue pral” (2011), . 21.

15 calvn h. Jnn, “tmber!, tax Ne” (Aun: Unvery texa,

2009), avalable a ://www.uexa.edu/law/auly/alvnjnn/mber_11-16-09-ax-ne.d.

16 Dearmen e treaury, “Rer cngre n e Derean hre” (1990), avalable a ://www.reaury.gv/reure-ener/ax-ly/Dumen/dere8udy_re.d .

17 cmmee n e Budge, Uned sae senae, “tax Exendure:cmendum Bakgrund Maeral n indvdual prvn”(2010), . 33-35.

18 Gvernmen Aunably ofe, “cnumer-Dreed heal plan,Early Enrllee Exerene w heal savng Aun and Elgbleheal plan” (2006), . 30. See also Gvernmen Aunably ofe,“heal savng Aun: paran inreaed and Wa Mrecmmn amng indvdual w hger inme” (2008); Edwnpark, “GAo sudy Agan cnrm heal savng Aun prmarlyBene hg-inme indvdual” (Wangn: cener n Budge andply prre, 2008), avalable a ://www.b.rg/m/ndex.

m?a=vew&d=291.

19 inernal Revenue serve, “iRs publan 936: hme Mrgage iner-e Dedun” (2010). . 2.

20 te ax exendure r e mrgage nere dedun rend me wa emaed baed n cngrenal Budge ofeemae n cBo, “Budge on” (2000). cBo emaed a lm-ng e mrgage nere dedun r end me wuld reuln $800 mlln n addnal revenue n al year 2005. te almrgage nere dedun wa emaed $62.2 blln nal year 2005. See ofe Managemen and Budge, “Analy-al pereve, Budge e U.s. Gvernmen, Fal Year 2007”(2006). terere, baed n be emae, e end me dedu-n rereened arxmaely 1.3 eren e al mrgage n-ere ax exendure. We nervavely emaed a e endme dedun wll nue 1 eren e ax exendure nuure year. te emae r FY 2012-2016, erere, are 1 eren oMB’ ax exendure emae r e mrgage nere dedu-

n r e year.

21 Gvernmen Aunably ofe, “orune Reduepenal Dulan n Gvernmen, save tax Dllar, and EnaneRevenue” (2011), . 59-61.

http://www.americanprogress.org/issues/2010/04/pdf/energytaxexpenditures.pdf



http://www.utexas.edu/law/faculty/calvinjohnson/timber_11-16-09-tax-notes.pdf


http://www.treasury.gov/resource-center/tax-policy/Documents/depreci8study_horses.pdf


http://www.cbpp.org/cms/index.cfm?fa=view&id=291














About the authors

Michael Ettlinger is he Vice Presiden or Economic Policy a American Progress.

Prior o joining he Cener he spen six years a he Economic Policy Insiue

direcing he Economic Analysis and Research Nework. Previously he was ax

policy direcor or Ciizens or ax Jusice and he Insiue on axaion andEconomic Policy or 11 years. He has also served on he sa o he New York

Sae Assembly.

Seth Hanlon is Direcor o Fiscal Reorm or CAP’s Doing Wha Works projec.

His work ocuses on increasing he efciency and ransparency o ax expen-

diures in he ederal budge, and on ax issues generally. Prior o joining CAP,

Seh praciced law as an associae wih he Washingon, D.C., rm o Caplin &

Drysdale, where he ocused on ax issues acing individuals, corporaions, and

nonpro organizaions. He previously served on Capiol Hill or more han ve

years as a legislaive and press aide o Reps. Harold Ford, Jr. (D-N) and Mary Meehan (D-MA).

Acknowledgements

Tis repor draws subsanially upon previous research by CAP’s Michael Linden

and ormer CAP colleague Sima Gandhi, among ohers. James Hairson provided

criical research assisance. SubsidyScope, an iniiaive o he Pew Chariable

russ, helped provide hisorical daa on ax expendiures. Tanks also o Ed

Paisley and CAP’s ediorial and ar eams.



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