Increased Tax Breaks for Wealthy Diverts Money That Could Benefit Americans in Need

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Posted Sept. 18, 2013

Interview with Mattea Kramer, research director with National Priorities Project, conducted by Melinda Tuhus

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Each year since 1974, the White House releases an estimate of the cost of all federal tax breaks, also known as subsidies or tax loopholes. The non-partisan, non-profit National Priorities Project has recently completed a ground-breaking analysis of these federal tax breaks over the past 38 years, revealing they have grown in number and size, diverting money that could otherwise be used in to benefit Americans in need.

The study of tax loopholes is in keeping with the National Priorities Project’s mission to make the complex U.S. federal budget transparent and accessible so people can exercise their rights and responsibilities to influence how their tax dollars are spent.

Between The Lines’ Melinda Tuhus spoke with Mattea Kramer, research director with the National Priorities Project, who explains that this year’s tax breaks cost the U.S. government an estimated $1.13 trillion dollars, just slightly less than all discretionary spending, and substantially more than the budget deficit during the same year. In this second third week of September, which marks the second anniversary of the Occupy Wall Street movement, Kramer explains that the richest 1 percent benefit the most from the existing tax code and proposes changes to make the U.S. system of taxation more fair and equitable.

MATTEA KRAMER: Many, many Americans benefit from tax breaks of different kinds. The question is, are we benefiting equally or are certain folks benefiting more than others? And what we found is that many of the top tax breaks – which account for the vast majority of the cost of all tax breaks from the federal government – these top tax breaks are tilted heavily in favor of the wealthy. So there's some egregious examples, for instance, there's a special low tax rate on capital gains and dividend income, and that tax break costs the federal government about $83 billion this year, so it's a huge sum of money. And nearly 70 percent of that total goes to the top 1 percent of income earners, so in other words, this is a huge boon in terms of tax savings for the top-earning, or the wealthiest Americans.

BETWEEN THE LINES: How long have these tax breaks been on the books? How did they get on the books?

MATTEA KRAMER: Well, many of them have been on the books in one form or another for many decades. The largest tax expenditure out there is the exclusion of employer-sponsored health care, and I know that sounds really obscure. In fact, it's a tax break that anybody who gets health care through their employer benefits from. What it means is that we can pay for health care with pre-tax dollars. We don't typically ever see that tax break, but it is the largest one – it costs the federal government about $200 billion a year. That tax break has been on the books for many decades, and it's been intertwined with the history of health care in this country, in which the government wanted to subsidize health insurance and decided to do so by making employer-sponsored health insurance more affordable.

BETWEEN THE LINES: That sounds like it covers a lot of people, so not just the top 1 percent. And many Americans at the lowest income levels would be eligible for Medicaid. So would you consider that a progressive tax break?

MATTEA KRAMER: I don't agree that it's a progressive tax break. It's less regressive – far less regressive – than many of the other tax breaks, but it's not progressive in the sense that the majority of the benefits don't go to those who are the least well-off. So it still heavily benefits wealthy Americans, but it does – far more than many of these other tax breaks – offer benefits to middle and low income folks. I don't think necessarily that this tax break ought to be substantially reformed, but I do think it's important to acknowledge that the federal government is spending $200 billion a year on this type of subsidy and absolutely, it's an important objective to make sure Americans can afford health insurance, but this tax break only reaches folks who already have employer-sponsored health care, so it does nothing for folks who work for themselves or don't have a job.

BETWEEN THE LINES: Can you discuss one or more of the tax subsidies that the National Priorities Project would like to see reformed or eliminated?

MATTEA KRAMER: Oh, absolutely. Well, in speaking of corporate tax breaks, the largest corporate tax break allows corporations to defer paying taxes on income earned abroad. That means a corporation attributes x-millions or billions of dollars in income to their operations in Europe or Asia, they don't have to pay U.S. federal taxes on that money unless they bring it home. And what it does effectively is create an incentive for corporations to keep billions of dollars in some cases, in cash, overseas. We think that could be an opportunity ripe for reform. It doesn't seem to make sense from a number of perspectives and it cost the federal government about $40 billion this year.

BETWEEN THE LINES: Does any other one stand out as especially unfair?

MATTEA KRAMER: Well, I mentioned a bit earlier the special low rate on capital gains and dividend income. So this is a special tax rate for income earned on investments. What it means is that folks who earn their living by investing money pay a lower tax rate than folks who earn their living by working. The purpose behind that tax break is to encourage investors to take the risk of investing, but the upshot is that very wealthy individuals sometimes pay a tax rate that's much, much lower than their middle class peers. And so we heard this sort of famously in the 2012 presidential election, when we heard that Mitt Romney paid a tax rate of something like 13 percent, and that's because he's someone who earns his income from investment income, and so that's another tax break that absolutely could be an opportunity for reform. That cost the federal government about $83 billion this year. That's a lot of money; by way of comparison, the federal government spends this year about $68 billion on all education programs, so that gives you a bit of comparison for scale.

BETWEEN THE LINES: Now that you have all this valuable data, what do you want to see happen?

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