The federal government devotes more than $1 trillion -- that's $1,130,000,000,000 -- to something that gets almost no oversight or debate. What's this trillion-dollar secret project? Tax breaks.
Tax credits, deductions, and exclusions are all different kinds of tax breaks that benefit individuals and corporations alike. And a report released this week by my organization, National Priorities Project, tracks those tax breaks over time and examines exactly who benefits. The upshot? The top tax breaks overwhelmingly benefit wealthy Americans.
Take the special low tax rate for capital gains and dividends -- the fourth most expensive tax break on the books. That tax break will cost the federal government $83 billion this year, and a staggering 68 percent of benefits will go to the top 1 percent of earners.
One of the most well known -- and most expensive for the federal government -- tax breaks is the deduction for home mortgage interest. It's a policy that's intended to make home ownership affordable for middle-class Americans, and for many homeowners, it achieves that goal. At the same time, however, it offers a tax break for wealthy Americans who buy second and third homes, or even buy a yacht and call it a home. In total, that deduction will cost the federal government around $93 billion this year and 15 percent of that will go to the wealthiest 1 percent.
Meanwhile, tax breaks for corporations will total around $110 billion this year. That's far less than tax breaks for individuals, but by way of comparison, the federal government will spend around $68 billion on federal education programs this year -- substantially smaller than the sum devoted to corporate tax breaks. Is that consistent with the priorities of the people? Based on a quick glance at public opinion polling (.pdf), I doubt it.
What's most troubling about the trillion dollars devoted to tax breaks is that -- outside a few circles in Washington -- it's mostly unknown. And once a tax break is written into the tax code, it stays there year after year with no oversight into whether it's achieving a worthy goal.
Congress is now talking about taking up tax reform. That's great news, because we as a nation have some soul-searching to do. Tax breaks are siphoning off huge sums of dollars from the federal budget at a time when we're seeing cuts for public education, food safety, even the criminal justice system, among many other things. Some modest changes in the tax code could save our government billions of dollars while still meeting their stated goals for our nation.
Case in point: Lawmakers could easily reform that the home mortgage interest deduction so it doesn't apply to multiple homes or mortgages over a certain size -- and thereby better target the policy to middle-class families.
Let's bring these tax breaks out into the sunlight and have a frank discussion about how Washington's priorities stack up to the priorities of the people.