Middle Class, Wealthy Receive Top Tax Breaks

Friday, 08 Feb 2013 01:18 PM

By Michelle Smith

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Talk about tax reform is just a lot of hot air unless lawmakers are ready to anger two influential groups of voters: the middle class and the wealthy. These are the primary recipients of top tax breaks, according to CNNMoney.

An analysis by the Joint Committee on Taxation reveals that the long list of deductions, exemptions and exclusions in the tax code result in the federal government making a $1 trillion sacrifice each year. And CNNMoney said most of that $1 trillion is given up for just 10 tax breaks.

Knowing where large revenue gains can be made may seem to simplify the budget issue. But that is not likely because some of the most expensive tax breaks are extremely popular among individuals.

Editor's Note: Tiny Loophole Found in 70,320 Page IRS Tax Code Could Pay $87,500

Topping the list is the healthcare exclusion, a perk whereby employers pay a portion of their workers’ healthcare but the workers are not taxed for those contributions. This is projected to cost $760 billion dollars over five years.

Furthermore, the tax code is stuffed with incentives for people to do things, Paul Gutterman, director of the Master of Business Taxation program at the University of Minnesota’s Carlson School of Management, writes in the Star Tribune.

Encouraging savings for retirement constitutes the nation’s second largest tax break, which is expected to cost $709 billion. To encourage investments, taxpayers are offered reduced rates on dividend income and capital gains, an incentive estimated to create another $616 billion in losses.

And home ownership is a central part of the American dream. To help people achieve it, the federal government will forgo an estimated $379 billion with the mortgage interest deduction, according to CNNMoney.

The tax code clearly bears significant benefits for the middle and upper classes. Meanwhile, groups that are often targeted in budget debates actually appear to be milking the tax system less than some may have us believe.

The Earned Income Tax Credit, projected to cost about $326 billion, is the fifth largest tax break, but it is also the only among the top 10 primarily aimed to benefit low income households.

Corporations are often vilified but they also have one tax break among the top 10 especially carved out especially for them, CNNMoney reported. That allows the deferral of tax on income earned by subsidiaries abroad until the money is repatriated. The projected price tag is $265 billion, placing it at number eight.

Gutterman tells students major tax reform won’t happen in his lifetime or theirs either because Americans would have to make their own grand bargains.

Congress’ real goal “is to get re-elected,” Gutterman wrote. “If voters demanded tax simplification as a condition for election, it would occur. Yet voters have made it clear that they dislike tax incentives used by others but are very protective of the ones they use.”

Editor's Note: Tiny Loophole Found in 70,320 Page IRS Tax Code Could Pay $87,500

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