The 10 Largest Tax Breaks In The Income Tax system


The Congressional Budget Office (CBO) has published an interesting report titled, The Distribution of Major Tax Expenditures in the Individual Income Tax System, that shows how 10 of the largest tax breaks, credits and deductions are distributed across household with different income levels. These tax breaks (or tax expenditures as they are referred to) include, Itemized deductions (mortgage interest and charitable contributions), earned income tax credit (see 2013 EITC), child tax credit and subsidies for items excluded from taxable income such as employer sponsored health insurance and pension contributions. These 10 tax breaks are only a small fraction of the more than 200 tax expenditures in the individual and corporate income tax systems, but account for roughly one trillion or two-thirds of the total 2013 budgetary tax expenditures.

Not surprisingly as the graphic below shows the benefits from the tax breaks are distributed unequally, with more than half of the combined benefits accruing towards households with income in the highest quintile (or one-fifth) of the population (with 17 percent going to households in the top 1 percent of the population). In contrast, 13 percent of those tax expenditures will accrue to households in the middle quintile, and only 8 percent will accrue to households in the lowest quintile (see the top panel of the figure below).

When measured relative to after-tax income, the 10 major tax expenditures are largest for the lowest and highest income quintiles. For 2013, the CBO estimates, the combined benefits will equal nearly 12 percent of after-tax income for households in the lowest income quintile, more than 9 percent for households in the highest quintile, and less than 8 percent for households in the middle three quintiles

Tax Breaks By Income

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