The off-budget tax breaks, known as tax expenditures, got an even bigger target placed on them Wednesday when the Congressional Budget Office released a new report detailing the top 10 most expensive breaks.
Both Republicans and Democrats have been eyeing these breaks recently as potential revenue in any overhaul of the tax code. Eliminating, reducing, or limiting the use of tax expenditures could help lawmakers lower the corporate or individual tax rates. Not only that, but it's one of the key areas of fiscal policy where the two parties broadly agree on a diagnosis for solving the long-term deficit and tax-policy problems.
The top 10 most expensive tax expenditures will cost the federal government roughly $900 billion in 2013, according to CBO—and close to $12 trillion over the next several years through 2023. That's about 5.4 percent of the gross domestic product.
By far, the biggest-ticket item goes to the break for employers that offer health insurance; that expenditure alone reduces the tax rolls by $260 billion in 2013, according to CBO. Among the most expensive breaks are also ones much beloved by Americans, including breaks for mortgage-interest payments, charitable contributions, and state and local taxes. Their popularity makes it difficult politically for lawmakers to consider cutting or reducing them.
That's why both Republicans and Democrats so often repeat the mantra of "broadening the base and lowering the rates." In tax-speak, that's a vague way to talk about reducing tax expenditures without having to name specifics and raise the hackles of Washington's myriad of special-interest groups that benefit from such goodies.
One of the most pernicious traits of tax expenditures, according to CBO, is the way they're treated in the budget process. Because tax expenditures are not subject to the appropriations process, it's easy for this type of break to exist forever and continue to grow; this unique budgetary treatment, as CBO points out, means the costs of tax expenditures are far less transparent than other government programs.
Altogether, CBO estimates that the 10 top most expensive tax expenditures will equal about one-third of the total revenue that the government takes in during 2013.
In his most recent budget, President Obama has called for limiting the value of itemized deductions that wealthy households can collect as a way to raise money to reduce the deficit. Rep. Chris Van Hollen, D-Md., and Rep. Sander Levin, D-Mich., the ranking members of the House Budget Committee and Ways and Means Committee, respectively, broadly endorsed this policy Wednesday, though they were reluctant to define the tax threshold for wealthy households.
Republicans have broadly talked about eliminating breaks as a way to reduce overall tax rates in a comprehensive overhaul of the IRS code—something that Ways and Means Committee Chairman Dave Camp, R-Mich., plans to continue to push for in the coming months.
This article appears in the May 30, 2013, edition of NJ Daily.