By: Andrea Levere
April 13, 2011
We need to seriously consider generating revenue by eliminating and reforming tax expenditures. As Bruce Reed, director of President Obama's Fiscal Commission, has said on more than one occasion, "the current tax code is more holes than cheese. Our existing system amounts to an upside-down set of tax incentives that allow wealthier taxpayers to shelter income and build assets while doing little to help low- and middle-income families.
Current tax deductions and preferences that are aimed at helping American families buy homes, go to college, save for retirement and start businesses are well-intentioned but ill-conceived. In 2009, they amounted to about $400 billion in foregone revenue. Who got the benefits? More than 53 percent accrued to the top 5 percent of tax filers by income. By way of contrast, the bottom 60 percent of tax payers combined saw 4 percent of those benefits come their way. Put another way, the current system of tax deductions saved millionaires more than $95,000 on their tax bill, while middle-class taxpayers earning about $45,000 saw a savings of about $270.
The simple fact is that we could raise a lot of revenue to lower long-term deficits by closing some of these unfair and unproductive holes. And we could simultaneously create new, fair and effective incentives that help all families save and invest in their financial futures. We at CFED believe that you could cut the current $400 billion in these incentives in half, rendering $200 billion a year to reduce the deficit and provide an annual $500 savings match to every man, woman and child in the United States to build their economic futures and ours.