Dumb tax breaks cost America billions

Taxpayers have received 150 more of them over 40 years, but a handful really stand out as the most wasteful.

By Jason Notte Jun 4, 2013 7:15AM
Dollar bills floating over U.S. Capitol © CorbisSo you say you want a tax break? Great, because the 150 or so you've received since 1972 have worked like a charm so far.


Congress' Joint Committee on Taxation notes that the number of breaks offered to American taxpayers has grown from just 60 in 1972 to more than 200 today. So many, in fact, that when CNNMoney asked the Tax Policy Center which breaks are the worst, the center responded as if asked whether it would rather be burned to the ground or plowed into the ocean.


"It's hard to rank stupid tax provisions, because there are so many candidates," said Len Burman, the center's incoming director.


Some breaks disproportionately help some taxpayers more than others. In other cases, they're not much help at all and only make it more difficult to balance the nation's books. The folks at the Tax Policy Center reserved much of their ire for four tax breaks in particular:


Carried interest: Sound familiar? Warren Buffett assailed tax foe Grover Norquist for defending it, and President Barack Obama has also targeted it.


Basically, carried interest allows managers of private equity, venture capital and hedge funds to pay a lesser rate on their share of profits from the funds they manage. Instead of paying the top rates of 35% or 39.6%, they get the long-term capital gains tax rate of 20% on those carried interest earnings.


Fans of carried interest love it because it lessens their risk a bit. Critics say the fund managers are performing that service for a fee and should be taxed the same as everyone else. Were that to happen, the Joint Committee on Taxation estimates the higher rate would bring in an extra $17.4 billion over the next decade.


The health care exclusion: Yes, health care is costly enough even when an employer chips in. However, for 160 million Americans, even the tax-free employer-covered health care is subject to tax breaks that will cost an estimated $760.4 billion over the next five years.


State and local tax deductions: By deducting your state and local income tax, property taxes and others, the one-third of taxpayers who itemize tax deductions are effectively subsidizing those state and local governments, as CNNMoney explains. That gives states like California the means to jack up income taxes to 13.3% because their citizens know they can deduct their state income tax on their federal returns.


And it's costing the federal government $278 billion over the next half decade, according to the Joint Committee on Taxation.


Exclusion of capital gains taxes at death: It's one of the many ways the rich get richer. Basically, if a loved one dies and bequeaths you stock they've held for decades, you're not on the hook for any of the capital gains accrued by that stock during the original holder's lifetime. The gains start when you inherit the stock and taxes need to be paid only if you sell it.


More on moneyNOW

285Comments
Jun 4, 2013 9:24AM
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Explain to me why our government sees a necessity to levy a tax on inheritance?  My parents work a lifetime to earn assets to be left to their children/grandchildren that HAVE ALREADY BEEN TAXED.  Now they pass away and our government wants to collect on them again!!!!
Jun 4, 2013 9:20AM
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We should institute a nationwide 11% tax that applies to every dollar earned over $25,000.  No tax breaks, no loopholes, nada.  everyone pays the exact same percentage and is proportionally responsible for the upkeep of our country.  And no more of this earned income credit bull$hit for those who dont pay any damn taxes anyway.  Why should my tax dollars go to give cash to those who dont pay taxes?  I pay for their health care and food already!
Jun 4, 2013 9:17AM
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Letting people KEEP their money is not costing anyone anything.   SPENDING, BORROWING and PRINTING by the Obamanation are what the problem is....

In 2008 we spent 2.9 trillion, today w are spending 3.9 trillion...  The PROBLEM is run away spending.  Ask yourself this people.... 

DID YOUR PAYCHECK GO UP 34% in the last 4 years?   Governments did....
Jun 4, 2013 9:08AM
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Only an idiot could believe that tax breaks or tax cuts are wasteful spending,  BECAUSE IT'S NOT THE GOVERNMENT'S MONEY TO BEGIN WITH!!!

Jun 4, 2013 9:19AM
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Tax breaks don't COST the government anything, because it isn't their money to begin with.  The statists are very clever at changing the language to suit their agenda.
Jun 4, 2013 9:37AM
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The estate tax should be done away with entirely-----------You have already paid taxes on earnings

and why should you have to pay double taxes just because you die?????????????????

Jun 4, 2013 9:19AM
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Each "tax break" you want to eliminate simply means you want to increase the percentage of the economy that is taken from taxpayers and given to the govt.

 

SHAME ON YOU for suggesting that instead of cutting government.

Jun 4, 2013 9:23AM
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Straight 10% for everybody with no exemptions, one simple form! You will still gain billions over this exempt ridden tax schedule that allows major corporations to pay 0 or a very small amount of the tax burden. If that formula is still not bringing in enough to fund the government, more cuts and as a last measure a 1% consumer tax or national sales tax. Even, fair and everybody has to pay their fair share. The progressive tax schedule is a joke with all the exemptions currently in it. Oh yea! a 35% tax rate for all corporations that manufacture over seas and import the product back into the U.S. You see if they build it here they get the 10% rate, talk about stopping the out sourcing and bringing good jobs back to the U.S.. That alone would stop a lot of unemployment being paid out and provide more living wage job tax payers paying into the system. Including Social Security that desperately needs the new workers paying into it.

 

Oh yea! shut down the Cayman Island and Swiss banking accounts, get the money back on shore and not hidden in tax dodging accounts.

Jun 4, 2013 9:52AM
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Being able to deduct your state & local taxes is a "Dumb" deduction? Does this moron realize that otherwise you are taxing taxes?  They want to tax health care benefits at a time when the middle class is being crushed anyway? for what, so the government can piss it away?  Gee lets give more space to ignorant "reporters", or as they are now being referred to as "presstitutes". 
Jun 4, 2013 9:18AM
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It is not your money!
It is OUR wealth!
Jun 4, 2013 9:17AM
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"it's a great way to hand down wealth while avoiding that pesky estate tax"

 

Incorrect. It only avoids the capital gains taxes. The stock would still be subject to estate tax at its full value.

Jun 4, 2013 9:47AM
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I think it's a pretty biased article.  Jason makes it sound like its hurting America because we have these tax breaks and it's the American tax payers' fault.  I think any tax break that the American citizen gets is a win for America.  Remember, it's not a taxing problem, it's a spending problem.  10% from every adult citizen should be more than enough to run any government.  Any more than that and your government is over reaching its authority.  

Infrastructure and safety should be the primary functions of government.  The second you control anything beyond that and you are acting as my big brother and that's not right.  The size and scope of our government and other developed countries around the world is sickening and anemic for its citizens economic growth, prosperity, and well being.  
Jun 4, 2013 9:49AM
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So this author thinks it unfair that the Federal government is not taxing you on the tax that you have to pay to state and local governments.  Are you kidding me.  They talk about the money as if the government earned it and you are the one getting a handout rather than the other way around.

Jun 4, 2013 9:32AM
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we can eliminate this problem forever by going to the "fair tax" ...
Jun 4, 2013 9:42AM
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It is amazing how all the articles seems to imply government entitlement through taxes.  Taxes are necessary but why do we always feel our local, state and federal officials are always looking for ways to raise taxes and not how we can lower them or live within the restricted budgets.   As with any persoanl finiance, one must live within their means, but the government never approaches it that way.   They always seem to think more money will resolve any problem in lieu of  how to impove the issues through  good business/government decisions based on the funds available, as most famililes everyday.  It is frustrating to think government officials are always looking for something they can tax as if it is their badge of honor.

Jun 4, 2013 9:21AM
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Whatever tax break you get, you deserve especially if you are a senior citizen.
Jun 4, 2013 9:22AM
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This was your government, we love you and send us more money.    Seriously - wtf wrote this?  A drug dealer?  I got 50% of this town not doing drugs - that is 'costing' me $80 mil a year!
Jun 4, 2013 9:37AM
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 Simple system really!

 If one is Poor or Rich  than that person pays less tax or no  tax....

The Poor and the  Rich are the first  classes to scream " my rights have been violated " . 

 

 

 

Jun 4, 2013 8:58AM
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Exclusion of capital gains taxes at death is one of the hidden breaks we in the upper 1% get to enjoy that is never talked about. I believe this is one of the very 1st times I have heard it mentioned.  Good for MSN.  Works like this.  I have a stock (or fund) that grows in value and I simply buy and hold.  Say I buy at $10 and 20 years later I die and it is worth $200.  That is $190 per share unrealized Capital gain so no taxes have ever been paid.  My kids inherit and sell immediately at $200. Not 1 penny of Capital Gains taxes will be owed on that $190 per share gain.  Try doing that with CD's, Savings Accounts, Money Market funds, etc.
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