As seen in the 2012 presidential election, both candidates sparred often on federal expenditures and how much the government should collect in taxes. The Congressional Budget Office (CBO), a non-partisan unit of the U.S. Congress, has released a new report, which could bring this issue of a “steeply progressive tax system” back to the steps of Capitol Hill amidst the scandals miring it’s current session.
The report illustrates that the richest 20 percent of Americans will receive half the tax breaks the IRS offers. The CBO says that the “10 major tax deductions, credits and exclusions for individuals are distributed unevenly among income levels, with just over half of an estimated $900 billion in savings for fiscal year 2013 headed to [this group].”
Additionally, the wealthiest 1 percent, those with an income topping $327,000, get 17 percent of the total savings from the breaks.
Finally, the CBO approximates that 13% of the breaks will benefit the middle-income bracket while 8% of breaks will go to the lowest-income bracket.
According to the CBO, “the biggest tax breaks by dollar value this fiscal year are the tax-free treatment of employer-provided health insurance (about $260 billion), preferential rates for dividends and capital gains ($160 billion) and tax-free contributions to retirement savings ($140 billion). Deductions for state and local taxes ($80 billion), mortgage interest ($70 billion) and contributions to charity ($40 billion) are also among the top 10, as is the tax-free treatment of capital gains on assets transferred at death ($50 billion).”
Rounding out the top 10 are three breaks that primarily benefit lower-income households: “the tax-free treatment of most Social Security benefits ($35 billion), the child tax credit ($60 billion) and the earned-income tax credit ($60 billion).”
So, what does either side in DC think?
Robert McIntyre, director of Citizens for Tax Justice, notes that “lumping the top 20 percent of earners by income is misleading because it ranks billionaires along people making around $100,000 a year, an income typically considered middle class that doesn’t collect huge amounts of investment income.”
Moreover, IRS data also shows, in fact, that the wealthiest 20% of families paid a stunning 94% of all income taxes. So, it should make sense that those who paid the most should receive the breaks as well.
The CBO also notes that tax breaks are essentially equal to government spending because they are intended to encourage and subsidize various behaviors, such as buying a home, saving for retirement and giving to charities.
In all, Republicans want to use the savings to lower rates, which they say will accelerate economic growth and increase revenue collection.
On the other side, Democrats point out that this report once again reiterates President Obama’s push for raising revenues by limiting the amount of tax preferences for the wealthy.
“We think it’s important to decide whether we want to prioritize education for the kids of our servicemen and women or tax expenditures for the top 1 percent,” said Rep. Chris Van Hollen (Md.), the senior Democrat on the House Budget Committee
Rep. Van Hollen has also held that his favored method would be to limit the total amount of deductions for the top 2 percent of income earners, families earning $250,000 or more, while leaving intact much of the top 10 tax breaks.
The newly minted CBO report on tax break analysis will surely bring back the debate toward ridding the current tax system and renovating even though both sides don’t seem near compromise on the necessary changes.
- Wealthy benefit the most from top tax breaks, government study shows (nbcnews.com)
- Wealthy benefit most on big tax breaks, CBO study finds (oregonlive.com)
- CBO: Tax Breaks Cost $12 Trillion Over Decade, Benefit Most Wealthy (huffingtonpost.com)
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