Washington, D.C.— Getting rid of the worst tax expenditures as a part of a debt limit deal would improve the efficiency of the tax code while raising much-needed revenue, and could appeal to both sides of the aisle as a useful deficit cutting strategy in the ongoing debt ceiling negotiations. There are encouraging signs that the many tax loopholes, special tax subsidies, and targeted tax breaks buried in our nation’s corporate and individual tax codes could be eliminated, which would also increase transparency in the federal budgeting process going forward.
Cutting from the tax code to raise revenue
The Center for American Progress has already identified more than $1 trillion worth of these so-called tax expenditures that are ripe for reform or elimination. If the group of bipartisan budget negotiators led by Vice President Joseph Biden was to follow CAP’s recommendations, they would be halfway toward their goal of finding $2 trillion in deficit reduction without having to raise a single tax rate or cut a single dime from Social Security or Medicare.
CAP recently released a report entitled “Cut Spending in the Tax Code” almost two dozen different expenditures worth up to $1 trillion over 10 years were identified that should be the first to go. Three groups of tax expenditures particularly ripe for the picking include:
- The more than $40 billion in oil and gas subsidies
- The subsidy for hedge fund and private equity managers worth $14.8 billion
- The deduction for vacation home loans worth $10 billion
To see a more detailed chart of expenditures that could be cut, worth a total of more than $1 trillion, click here.
What is a tax expenditure?
The ethanol industry enjoys a special subsidy—a tax credit worth 45 cents for every gallon of ethanol blended into gasoline. Congress could have accomplished the exact same thing by simply writing ethanol producers a check for 45 cents per gallon rather than crediting them the same amount on their taxes, but that would have counted as government “spending.” Since the ethanol program is technically a tax credit, it is instead counted on the federal government’s ledger as a reduction in revenues.
That spending program transparently “disguised” as a tax cut is a “tax expenditure,” which doubles as an inefficient spending program. Because the federal government’s Renewable Fuels Standard mandate already boosts demand for ethanol, the ethanol tax credit is not needed—and is therefore nothing more than a wasteful giveaway.
To read more and see a full list of tax expenditures that could be cut to raise revenue, click here.