The Congressional Budget Office has produced a report on the distribution of major tax expenditures. A “tax expenditure” is, simply stated, government spending via the tax code. Use of the term may resolve the confusion that may arise when I use the term “subsidy”. Subsidies don’t just consist of giving money to people. They can consist in not taking money from people who meet certain criteria as well.
I’m sure that much of the attention in the press will be on what’s in the summary: 50% of all tax expenditures go to the topmost quintile of income earners. When you recognize that the major tax expenditures are employer-subsidized healthcare insurance, home mortgage interest deductions, charitable contributions, preferential tax rates on capital gains, and dividends, and so on that stands to reason. However, when you delve into the details of the report itself, it becomes even more interesting.
About 15% of all tax expenditures go to the top 1% of income earners while about a fifth of all tax expenditures go to the next 9% of income earners. You may recall that I have been harping for years on how, while we’re thinking about how well the top 1% of income earners are doing, we might want to think about the next 9% of income earners as well. This CBO report is more confirmation of that point.
We can’t take much solace in tax expenditures as a share of income, either. Tax expenditures comprise about 7% of the incomes of those in lowest quintile of income earners (presumably, mostly in the form of non-taxable Social Security benefits) and about 13% of the incomes of those in the topmost quintile of income earners. Yes, we’re subsidizing the incomes of people in the upper middle class and tax expenditures is just the tip of that iceberg.
So, when you condemn consumption taxes in favor of the status quo of income taxes, you’re defending subsidies for the highest income earners. Something to keep in mind.
As someone who has recently (just under a year ago) bought my first home – the traditional marker for entering middle-class success, I’m kind of shocked at how much the government is ‘helping’ me. They ‘invented’ the 30 year mortgage, buy the bulk of them to keep rates insanely low, AND THEN I get to claim those deduct those taxes from income. If I stay in my home a while longer and sell, I get to take the profit from the sale and walk away without paying taxes.
This is both a big give away to the (upper-?)middle class and above, AND a recipe for bubble building in the housing market. (I also have student loans and wonder why the government is much more willing to help with my mortgage than student loan debt.)
Absolutely. A consumption tax would hit harder those people who have larger mortgage payments. There is probably a pretty strong positive correlation between mortgage payment size and income size.
” A consumption tax would hit harder those people who have larger mortgage payments. ”
Probably not as a percentage.
Steve
Percentage of what? Percentage of income, depends doesn’t it on their overall spending habits. If your opposition is simply because the mortgage portion isn’t big enough that is just silly. And a consumption tax can have a built in standard deduction so that some progressivity can be built in.