10/6/2011 6:04 PM ET|
8 tax breaks that cost the US
Special tax treatment for mortgage interest, charitable donations and more are breaks beloved by many Americans. They also represent billions in uncollected taxes.
Taxpayers are always on the lookout for tax deductions, tax credits and income exclusions that help trim what they owe the Internal Revenue Service. What we call tax breaks are known as tax expenditures on Capitol Hill. And they cost the U.S. Treasury a lot of money.
Earlier this year, in preparation for a Senate hearing, the Joint Committee on Taxation calculated how much money is lost to some popular tax breaks. The final math? The top individual tax breaks will cost more than $3 trillion in uncollected taxes between 2010 and 2014.
The new committee charged with finding ways to trim the U.S. deficit will focus on spending cuts. But it's a good bet that some of the panel's 12 members also will look at how much money the Treasury could collect if at least some tax breaks were eliminated or tweaked.
Keep reading to find out how much Uncle Sam is expected to lose under the current tax system on your favorite tax breaks.
1. Health insurance
All employee compensation is subject to tax unless the tax code specifically excludes it. That's the case for certain employer-provided benefits.
The most tax-costly company perk is health care. The value of what your employer pays for worker medical insurance premiums, long-term-care coverage and health care doesn't cost you a penny in taxes.
But this break does cost Uncle Sam. Through 2014, employer-provided health care benefits will keep the U.S. Treasury from getting its hands on $659 billion.
2. Mortgage interest
One of the biggest individual tax breaks allows homeowners to deduct the interest they pay on their mortgages. It's claimed most frequently on the loan used to buy a taxpayer's main residence. But the mortgage interest deduction also can be claimed for second homes.
And those multiple residences don't even have to be permanent structures; a boat or RV could count. Supporters of this tax break say it's integral to making homeownership possible and keeping the housing industry afloat.
But it also comes with a high cost to the Treasury: $484 billion in lost taxes.
3. Capital gains and dividends
Investment earnings get preferential tax treatment and historically low tax rates for capital gains and dividends -- 15% for most taxpayers, 0% for some. These rates are scheduled to continue through 2012. The argument for the favorable tax treatment is that it encourages people to save money and invest in stocks, which keeps capital flowing into the economy and provides retirement cushions (that is, if the market doesn't totally tank).
But the cost of low investment taxes to the U.S. Treasury comes in two forms.
Investor savings, thanks to the lower tax rates on profits when they sell, are projected to reach nearly $403 billion by 2014. That gain for investors is Uncle Sam's loss.
Then there are assets left when their owners die. The increase in value of those holdings isn't taxed when the owner dies. That's because any heirs who get the property can step up the asset's basis, reducing any profit on subsequent sales. That produces a smaller tax bill for them. The cost to Uncle Sam, however, is estimated at $194 billion.
4. Pension plans
Another popular workplace benefit is a retirement plan. As with employer-provided health care, the uncollected tax costs are large.
Defined-benefit plans, usually referred to as traditional pension plans, pay retirees a fixed amount based on salary history and length of employment. Employers make tax-deductible contributions, and, as plan earnings accumulate, they are deferred from income tax. And even though workers will owe taxes when the retirement income is received, the tax cost of this type of plan is estimated to reach $303 billion between 2010 and 2014.
Many companies have switched to defined-contribution retirement plans. Here a worker's future retirement money depends primarily on the worker's own contributions, though some businesses match at least part of the employee contributions. The most common type of defined-contribution retirement plan is a 401k, in which taxes on the contributions and earnings are tax deferred until the worker takes out the money. These plans are estimated to cost the Treasury $212 billion.
5. Earned income tax credit
The earned income tax credit is available to workers who don't make much money. It was created to help offset the cost of Social Security payments. The credit is available to single taxpayers, but it pays more to taxpayers who support families. The credit also is refundable, which means that if a taxpayer doesn't owe any income tax, the filer could still get a refund from the IRS.
In recent years, the EITC has become a political lightning rod. Advocates say it encourages people to work. Opponents say the refundable aspect is particularly unfair to other workers who don't qualify.
But there's no argument over the tax credit's cost: an estimated $269 billion between 2010 and 2014.
6. State and local taxes
Some state and local taxes can help taxpayers reduce their federal tax bills. You'll find a place to write off these taxes on Schedule A, the form used to itemize deductions.
Filers can choose to claim state and local income taxes or sales taxes. Property taxes, usually the real-estate taxes homeowners pay to their county or parish tax collectors, also offer a nice tax deduction to many taxpayers.
All these state and local tax deductions are projected to cost Uncle Sam more than $237 billion.
7. Charitable donations
Americans are by and large a giving bunch. IRS data from the 2007 through 2009 tax years show that an average of 37 million taxpayers each year claim charitable deductions when they itemize on Schedule A. Donations can be cash, which in the IRS' eyes means money, checks or charges to credit cards. Or the gifts can be household goods, vehicles, appreciated assets or even the calculation of miles driven in doing charitable work.
These various gifts to qualified organizations -- for which the donor should have receipts -- help reduce taxable income, which means lower tax bills.
The donations also mean less money for Uncle Sam. Between 2010 and 2014, this deduction -- excluding donations for education and health -- will mean the U.S. Treasury will be out an estimated $182 billion. The amount would have been even larger, but congressional calculations didn't include donations to education and health care institutions.
8. Social Security, Railroad Retirement benefits
Retirees whose only income is Social Security or Railroad Retirement benefits usually don't owe federal taxes. However, the IRS gets a cut when a retiree has other income from, for example, a post-retirement job or investment earnings. Married retirees who file joint returns also must take into account any money earned by either spouse in determining whether any of the federal retirement payments are taxable.
In most cases when a retiree's additional earnings are large enough to attract IRS attention, up to 50% of federal benefits generally are taxable. However, in some situations a retiree could find up to 85% of Social Security or Railroad Retirement benefits taxed.
Still, plenty of benefit recipients escape taxation. They are expected to account for $173 billion in taxes that the U.S. Treasury won't collect between 2010 and 2014.
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Here is another savings which the Gov't won't even consider:
According to a United Nations Membership Assessment Report for 2009, the United States paid membership dues of $62,302,548, or approximately 22 percent of the U.N. annual budget for 2010. The European Union, Japan, and the USA cumulatively pay 80 percent of the total U.N. annual budget.
This is an organization that the west pays for and the rest of the world uses to punish us. Time to let the rest of the world start being responsible for themselves.
The whole problem with our taxes is the Gov't wastes most of what we wage earners give them. Time for our country to grow up and start being responsible to the American worker and not to just special interests. A flat tax on everyone would be the way to go. Everyone pays their fair share of every dollar they make and then we all will be part of a nation and not part of a "Class" that our President so frequently mentions.
It is unbelievably difficult to be exposed to the political propaganda offered as news these days. The first paragraph "...they cost the U.S. Treasury a lot of money"..... oh please! You have it all backward dear card carrying comrade, the U.S. Treasury costs the productive hard working citizens of this once great nation too much of their hard earned money. The author should pay attention to the public's reaction to this example of highly biased reporting, and consider the 86% thumbs down response to this article. Its not the topic, its the bias and the tone. Interesting choice of words in the second paragraph, it would have read better as "The top individual tax deductions, if removed from the Internal Revenue Code, would cost taxpayers more than $600 billion in taxes each year." The statement "Keep reading to find out how much Uncle Sam is expected to lose under the current tax system on your favorite tax breaks" turns my stomach, don't you understand that Uncle Sam is an insatiable pit for the taxpayer's hard earned money, and that the taxpayers are the losers under the current system. Without the deductions discussed in the editorial, we will all be relegated to an uncertain future as dependent surfs of a debt ridden, moribund social democracy. It should be clarified that the Earned Income Tax Credit is not a tax break, since those who receive a majority of the large benefit dollars receive a refund in excess of any taxes they might have paid. The EITC is a form of welfare delivered through the Internal Revenue Code and its tax return apparatus. The IRS is designed to collect income taxes and is not set up to monitor the eligibility of those who receive welfare through the filing of a tax return. As a result, many ineligible persons including prison inmates and illegal aliens fraudulently apply for and receive the EITC each year. This provision in the Internal Revenue Code is a miserable, failed socialist experiment that truly has proven itself to be a "tax expenditure" that should be eliminated prior to 2012.
THE US government does not have an income problem....it has a spending problem that must be addressed but that takes balls and our government is a bunch of eunicks....
How come no ever talks about the government union pensions and health care thats provided. Work for the government and collect a great pension after 30 years at no cost to you. Be a poor working slob and pay SS and Medicare payment but have to work till you're 66? How is that fair. Why not put all government workers on a 401K and SS like the rest of us.
Does anyone know where to find the % of entitlements are actually government generous pensions? I found it one time on the CBO site but have been unable to find it since.
NOPE...just how can we scrape every penny from the bottom of the "endless well" of the working Americans' pockets.
This is akin to some lame brain man thinking that he can trim his budget by doing away with spending money on food.
What would you call all of the current congress, senate, lobby groups, and administration at the bottom of the ocean?...a really good start!
Le's see, take money we ALREADY pay in income taxes to the STATE and DOUBLE TAX it by piling on federal taxes. I don't even get that money to use. They TAKE IT FROM MY CHECK before I get it.
Damn, what's it going to take to get these guys to JUST CUT SPENDING for awhile. Not reductions in spenbing increases - actual CUTS.
Try not funding the myriad of stupid things like methane expended by cows, or how many bees it takes to make an ounce of honey. Those grants for stupid crap like that are $350 million a year alone. I understand its a drop in the bucket but all of those drops add up.
How about not giving social security, medicare, and medicaid to illegals?
And taxing Social Security is asinine in the first place. You can't opt out and they pull it from your check involuntarily to use for decades. And these idiots want to increase taxes on the money they take from you?
And lastly, WHO SAYS IT'S THE GOVERNMENT'S MONEY TO BEGIN WITH? - I WORK FOR IT THEY DON'T. REPEAL THE INCOME TAX ALTOGETHER.
What happened to taxing the rich? Did we already give up on that idea and decide to attack the weakened middle class instead? It sure feels that way.
PUH-LEEZE!!! Most of these "tax breaks that cost the US" are actually breaks aimed at those making $200K per year or less.
Medical insurance paid by employer pre-tax--WHY NOT? This benefit is meant to encourage employers and unions to ensure coverage of employees by allowing employers (and unions) to contract for THEIR health insurance, usually at a lower rate and, more importantly, without refusal due to pre-existing conditions, age, sex, etc. that occur with individually-purchased policies. Take it away, and the money will be given to individuals who can't buy decent single coverage insurance. My policy costs me $200 per month, but the actual cost is $1,000 per month. Take the deductions away, and I end up with $1,000 per month additional income on which I have to pay 25 percent tax!!!
Earned income tax credit--take it away and call it what it is...TAXING THE POOR.
Social Security Benefits and RR Retirement...TAXING THE ELDERLY (and often taxing the poor as well).
Bottom line...Repealing these items would take money out of most of the lower-income and middle-income citizens. Since the rich want more protection for their income, it's only fair that the poor get some protection, too...or is that unfair in a class concept way???
Standard leftist propaganda, tax cuts bad, therefore tax increases good. Not a word about how horrendous government waste is hurting the country, how much unions, particularly public unions, cost us, etc.
Also, not a word about how much a runaway EPA is killing jobs, how anti business NLRB is killing jobs, how much Obamacare is killing jobs.
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