Sunday, June 2, 2013
The Tax Break State
All governments use tax policy to achieve social objectives. The US government provides tax breaks that reduce government income by $900 billion per year. This article breaks the tax breaks into three categories and it shows how each affects distinct income groups. Around 30% of the tax breaks benefit the top 1% because they are the primary beneficiaries of the preferential tax treatment of capital income. The top 20% benefit primarily from the mortgage interest deduction and the exclusion of state and local taxes along with health insurance premiums, paid for by employers, which are excluded from taxable income. The majority of tax credits go to those with low incomes. Tax credits are usually supported by democratic politicians along with most of the tax exclusions that benefit middle class Americans. The republicans prefer to cut tax credits, and they work hard to maintain or increase tax breaks for the top 1%. That is the simple answer to how Congress deals with $900 billion of tax breaks per year.