Tax Expenditures

(Government Welfare)





January 2011

(May be updated periodically with links at bottom)

UPDATED: July 26, 2011



All Links Will Open In New Window

This report is a collection of other reports and documents on Tax Expenditures only, although it may include some general information on Corporate Subsidies, Oil & Gas Industry and Farm Subsidies. A more specific report on the other three can be found in reports linked at the bottom.

Tax Expenditures is often mingled in with Corporate Subsidies (welfare). However Corporate Subsidies are comprised of many different things, but all involve taxpayer money in some form or fashion.

NOTES: There are literally hundreds of reports on Tax Expenditures. Many are undermined by self-serving purposes, but some are not. You may find a mixture of those in this report. In addition, depending on what and who these reports included or excluded, the total dollars for a particular subsidy will vary, sometimes considerably.


UPDATE: Be sure to visit the link at bottom to read additions to this report


"If all these [Tax Expenditure] programs were repealed we could cut corporate and individual income tax rates by over 40 percent and still collect the same amount of revenue."


Tax Expenditures are lost revenues (income): "Any reduction in government revenue through preferential tax treatment such as deductions or credits".

Definition as defined in the law: "Revenue losses attributable to provisions of the Federal tax laws which allow a special exclusion, exemption, or deduction from gross income or which provide a special credit, a preferential rate of tax, or a deferral of liability."



A few months ago I wrote a short post on tax expenditures where I pointed out that this concession of taxpayer revenue amounts to $1 trillion each year at the federal level, with the lions share benefiting corporate America and wealthy people. That number is now revised based on new figures. For example, The Center for American Progress says the federal government foregoes about $1.1 trillion each year in tax expenditures alone. That does not include what states give away in their Tax Expenditure programs (more on states below).


Tax Expenditures 101 - What They Are and How They Slip Under the Radar

What are tax expenditures?

What makes tax expenditures different from other forms of government spending?

What are the consequences of this differential treatment?

What can be done to rein them in?


Tax Expenditures cost the federal treasury somewhere between $800 billion and $1.2 trillion each year, depending on which report you read. The reason for the discrepancy is due mostly to how hard it is to actually pin-point what is and isn't a Tax Expenditure, and the many different government programs that administer them. That figure applies to the federal level only. Every state in the union also provides Tax Expenditures to corporations, businesses and individuals. That was estimated at about $774 billion in 2004 (the latest year I could find a "total" for all states). However, so many states hide this information that it's literally impossible to come up with an exact figure. (See link further below on finding Tax Expenditures for each state.)

It must be pointed out that in 2010 Tax Expenditures for home ownership accounted for only $123 billion: Federal deductibility of mortgage interest on owner-occupied homes ($108 billion) and deductibility of State and local property tax on owner-occupied homes ($15 billion). Much of that does not benefit the commoner, nor does a large portion of the remainder of Tax Expenditures.


Tracking Tax Expenditures

The Pew Charitable Trust has recently initiated a program to track tax expenditures. They claim their database is the first of its kind, in which they compare information from the Department of Treasury and the Joint Committee on Taxation. They provide the following graph that reflects the cost of these concessions. (Amounts are in billions.)

Thus far Pew is only tracking three categories: Housing (average $170 billion), Energy (average $9 billion) and Transportation (average $5 billion), but will add to that list as they collect the data. The numbers quoted are annual costs in billions.


The Center for American Progress recently reported on Government Spending Undercover, in which they say that Tax Expenditures will amount to $1 trillion for 2011. They tell us that these expenditures are more than three-fourths of all corporate and individual income tax revenues and more than one-and-a-half times the cost of all federal domestic discretionary spending. But their next sentence is the hardest hitting: "If all these programs were repealed we could cut corporate and individual income tax rates by over 40 percent and still collect the same amount of revenue."

The Center has recently launched a new series they're calling Tax Expenditure of the Week. Each week they will publish a new report explaining the government's biggest tax breaks. To date, three have been published.

Also, last year, around tax time, the Center for American Progress took a shot at cracking the Tax Expenditure code. They shed some light on some of the most ridicules recipients of Tax Expenditures.

  1. Slam dunk for the NCAA - $150 million in revenue by the NCAA not taxed.
  2. Accelerated depreciation for horse breeders and other businesses - $30 billion each year.
  3. Section 179 tax breaks for businesses' sport utility vehicles - $500 million each year.
  4. Fertilizing big agriculture - $1 billion each year for buying fertilizer, clearing brush from land, and planting windbreaks.
  5. Footing the bill for oil and gas companies - $3 billion in Tax Subsidies alone. This does not include the nearly $35 billion more in other Corporate Welfare.
  6. The timber (negative) tax - $500 million each year "for making money". They actually receive more in tax breaks than they pay in taxes.
  7. Subsidies for mansions and vacation homes - About $75 billion each year for second homes and vacation homes.
  8. Subsidy for capital assets? - $50 billion for people who invest in stocks, property, and other types of capital assets.
  9. Debt windfall for the wealthy - $40 billion for people who buy debt from state and local government.
  10. Murky stock ownership incentives - $2 billion each year, but is questionable as to whether or not it actually helps employees.

What are the largest tax expenditures?

The Tax Policy Center issued the chart below for the largest Tax Expenditures in 2008. The largest expenditure (deductible) was for premiums paid for employee medical care. Second largest was for contributions to employee retirement plans.

As you look at the following chart, think about what income levels you must be in to be on the receiving end of these benefits.


An interesting article on Tax Expenditures was written by Bruce Bartlett last year, Spending Through The Tax Code. He gives a pretty good history on this subject, including how multi-millionaires avoid paying any income tax at all due to Tax Expenditures. For example:

In 1959 five Americans were known to have incomes above $5 million (more than $37 million in today's dollars) yet paid no income taxes. In 1961, 17 Americans were known to have had an income of $1 million or more ($7.5 million today) without paying any federal incomes taxes. And Mrs. Horace Dodge had her entire $56 million fortune invested in tax-exempt municipal bonds, which paid her an annual income of $1.5 million (more than $11 million today) that she wasn't even required to report on her tax return, [and] in 1967 there were 155 taxpayers with adjusted gross incomes above $200,000 ($1.3 million today) who paid no federal income taxes, including 21 with AGIs [Adjusted Gross Income] above $1 million ($6.5 million today).

Bartlett says "the real problem with tax expenditures is that they tend not to get the scrutiny that spending programs get. Historically, new tax expenditures became permanent parts of the Tax Code and were seldom reviewed for effectiveness."


The Tax Policy Center compiled a report on How Big Are Total Individual Income Tax Expenditures, and Who Benefits from Them? Notice that this is on "individuals". They put the cost for 2007 at $750 billion. You must dig through the report as it is not broken down into exact benefits versus exact income levels. However, they do point out that the top quintile (out of 5) and the top 1% of incomers benefits the most from Tax Expenditures.


The Institute on Taxation and Economic Policy (ITEP) --- who tries to follow what individual states give away in Tax Expenditures --- published a report in 2005 which they called Tax Expenditures: Spending By Another Name. They reported that in 2004 Tax Expenditures for states cost $774 billion, although they admit that there is no way even to determine how much is being spent on Tax Expenditures in some states. There's no reason to believe this hasn't gone up each year since then. Couple that with what the federal government gives up in Tax Expenditures and the total is certain to exceed $2 trillion today.

Go to the ITEP Home page to look for Tax Expenditures in your state.

Another source for state Tax Expenditures is one from the Center on Budget and Policy Priorities. In their Promoting State Budget Accountability Through Tax Expenditure Reporting (PDF) you will find a link to every state that has provided Tax Expenditure data. However, as pointed out earlier, some states simply do not want the public to know what they're sacrificing. Therefore, there is no link to those states' Tax Expenditures.


Even the movie industry is privy to taxpayer subsidies. Just about ever state in the union offer huge tax breaks to movie makers to come to their state to film a movie. Search engines will bring up hundreds of examples. Here's one from just a few days ago about Massachusetts. And last month the Center on Budget and Policy Priorities published "State Film Subsidies: Not Much Bang For Too Many Bucks", where they said states committed about $1.5 billion in 2010. However, as can be the case with these kinds of unregulated programs, there is ample room for corruption. In the largest scandal of its kind, Iowa is prosecuting a state official for various crimes associated with the making of "Field of Dreams" in 1989. The lack of government oversight in these programs literally invites corruption.


The federal government provided a breakdown of Tax Expenditures in their budget for FY2010 (begins on page 297). (An alternate copy is placed here in the event the other one is moved.) There is no grand total, but individual amounts can be added to obtain one; but we already have a fair estimate: $1.1 trillion.

The Joint Committee on Taxation in Congress frequently publishes documents on Tax Expenditures. For example, on December 21, 2010, they published the Estimates Of Federal Tax Expenditures For Fiscal Years 2010-2014. Again, there are no grand totals. Probably by design, since they really have no intent of helping the general public understand what the bottom line is.

The Institute for Research on the Economics of Taxation (IRET) put out this list many years ago they say the JCT did not consider back then, so those may or may not be on the current JCT list.


(In 1998 TIME Magazine published an investigative report entitled "Corporate Welfare". It was published in parts over four consecutive issues. The report covered Corporate Welfare at both the Federal and States' level and includes "Tax Expenditures", which is a concession of tax revenue's, as well as direct payouts of money to corporations. As such, it applies to all four of my reports: Corporate Subsidies, Tax Expenditures, Oil & Gas Industry Subsidies and Farm Subsidies. Hence, references to and excerpts from the TIME report may be included in each of those.)

NOTE: References and excerpts included here from the TIME report are mainly about Tax Expenditures.

The TIME report reads like the take-over of a third-world country, and SHOULD BE REQUIRED READING FOR EVERY AMERICAN WHO IS VOTING AGE.

The investigation leading to TIME Magazine's report took 18 months. It was published over four consecutive issues of the magazine: November 9, 16, 23, and 30. The first part begins with an attempt to get ones attention:

"How would you like to pay only a quarter of the real estate taxes you owe on your home? And buy everything for the next 10 years without spending a single penny in sales tax? Keep a chunk of your paycheck free of income taxes? Have the city in which you live lend you money at rates cheaper than any bank charges? Then have the same city install free water and sewer lines to your house, offer you a perpetual discount on utility bills--and top it all off by landscaping your front yard at no charge?"

But then they burst your bubble:

"Fat chance. You can't get any of that, of course. But if you live almost anywhere in America, all around you are taxpayers getting deals like this. These taxpayers are called corporations." [bold added]

As for what states and local governments hand over, this is what Time had to say:

"There are no reasonably accurate estimates on the amount of money states shovel out. That's because few want you to know. Some say they maintain no records. Some say they don't know where the files are. Some say the information is not public. All that's certain is that the figure is in the many billions of dollars each year--and it is growing, when measured against the subsidy per job."

Then there's the "jobs created" myth:

"So the defendants of this welfare program want to tell us that jobs are created as a result (reference trickle-down-economics). Unfortunately, that's not what Time found in their investigation. The five biggest customers of the Import-Export bank, a bank funded by the taxpayer to subsidize companies who sell goods overseas, cut a third of a million jobs during a period when those five accounted for 40 percent of the banks loans. And there's more than enough information out there to prove that it's never worked any where except for a few small businesses --- businesses with less than 50 employees. So sure, trickle-down-economics really works!"

Recent reports have documented that as much as $3.1 million is spent in Tax Expenditures to generate only ONE hourly job. But that's nothing; look at the following list from the TIME report.

From 1988 to 1997:

The Costliest Jobs
Companies ranked by net cost of each new job (abatements divided by jobs created)

COMPANY

JOBS CREATED

COST PER JOB

1. Mobil Oil Corp.

1

$29,100,000

2. Dow Chemical Co.

9

$10,700,000

3. Olin Corp.

5

$6,300,000

4. BP Exploration

8

$4,000,000

5. Procter & Gamble

14

$3,100,000

6. Murphy Oil USA

10

$1,600,000

7. Star Enterprise

9

$1,500,000

8. Cytec

13

$1,500,000

9. Montell USA

31

$1,200,000

10. Uniroyal Chemical Co.

22

$900,000

**********

Shrewd companies are increasingly pitting politicians against one another in a quest for bigger and better tax breaks. Yet rarely do these subsidies create jobs, and the incentives sometimes rob government coffers of funds that could be used to improve services for you and your neighbors.

**********

Politicians stumble over one another in the rush to arrange special deals for select corporations, fueling a growing economic war among the states. The result is that states keep throwing money at companies that in many cases are not serious about moving anyway. The companies are certainly not reluctant to take the money, though, which is available if they simply utter the word relocation.

State and local governments now give corporations money to move from one city to another--even from one building to another--and tax credits for hiring new employees. They supply funds to train workers or pay part of their wages while they are in training, and provide scientific and engineering assistance to solve workplace technical problems. They repave existing roads and build new ones. They lend money at bargain-basement interest rates to erect plants or buy equipment. They excuse corporations from paying sales and property taxes and relieve them from taxes on investment income.

All in the name of providing jobs.

[But the] arithmetic seldom adds up. Let's say the [aforementioned] Philadelphia job pays $50,000. And each new worker pays $6,700 in local and state taxes. That means it will take nearly a half-century of tax collections from each individual to earn back the money granted to create his or her job. And that assumes all 950 workers will be recruited from outside Philadelphia and will relocate in the city, rather than move from existing jobs within the city, where they are already paying taxes.

**********

The town of Durant (pop. 2,500), a farming community with more sidewalks than paved streets, was offering to issue $25,000 in industrial-revenue bonds to buy land and erect a 15,000-sq.-ft. building, which it would lease to Real Silk for 25 years for all of $5 a year. In addition, Durant would waive five years of county taxes on the building and property taxes on the machinery. On top of that, the city would provide insurance, set up a training school and even erect housing for workers. In a front-page editorial that sounds eerily familiar, the Durant News crowed that the project was a great deal for the town. In a special election, the town's voters approved the bond issue, 330 to 19. The people of Durant were in the hosiery business.

At least for a while. Indeed, nine years later, in December 1946, Durant's citizens approved a second bond issue of $60,000 to expand the plant. At its peak, the Durant factory employed about 150 people. They worked three shifts daily, turning out 84,000 pairs of hosiery each week.

By the mid '50s, all that came to an end. Before the first bond was due to be paid off, Real Silk shut all its factories, including Durant, sold off the equipment and became an investment company. The lesson, one that has been lost on generations of mayors, Governors and Presidents, is that capital ultimately ignores such incentives. It seeks its highest reward as dictated by market forces, not political ones. The building that was to put Durant on the industrial map still stands--empty.

**********

Intel Corp. invited six Western states--Arizona, California, New Mexico, Oregon, Texas and Utah--to compete for a new computer-chip fabrication plant, or fab, and selected the winner in March 1993. A senior executive explained the decision this way to the San Jose Mercury News: "We're going to build where Intel gets the best deal."

And what a deal it got. New Mexico and the community of Rio Rancho, just north of Albuquerque, won the bidding war by showering Intel with tax abatements and other assistance. Sandoval County, where the company erected its fab, authorized $2 billion in industrial revenue bonds in 1993 and an additional $8 billion in 1995--the largest local-government bond offering in history. The county held title to the land, building and equipment, which it leased back to Intel.

Since governments are not taxable, this arrangement enabled Intel to escape property and sales taxes. Then there is the investment-tax-credit deal, which allows Intel to pocket a portion of the state income taxes withheld from its bunny-suited tech workers' paychecks. In addition, the state provided money to train workers. These and other benefits add up to a third of a billion dollars in aid for Intel.

**********

The Federal Government... spent $130 million so far to clean up the Alamosa River in Colorado, contaminated with cyanide and heavy metals from a gold mine abandoned in 1992. The final tab is expected to reach at least $160 million. The government will eventually spend more than $100 million to clean up a site in Wayne, N.J., contaminated with radioactive waste. The company has agreed to chip in $32 million. The government estimates it will cost as much as $200 million to scrub up a zinc-smelter site in Palmerton, Pa. The tab for cleaning up radioactive waste, at a site in Weldon Spring, Mo., is put at $800 million.

As is so often the case with environmental pollution, practices once deemed safe turn out years later to be hazardous. So it was with the PCBs used by General Electric Co. and other manufacturers of transformers. Now cost estimates for cleaning up GE's pcb contamination in the Hudson River alone range as high as $3 billion.

There are plenty of other interesting facts in the first part of the Times report, such as an estimated 11,000 organizations and agencies who work on getting this money out of taxpayers. For a moment, think about just how much money corporations pay out to these groups. Then think about how profitable the welfare program has to be.

Evidently Time has archived the articles that followed the first one linked above. However, the Old Man was able to piece the individual parts together, including the first part, and convert it to a PDF. It reads like the take-over of a third-world country, and SHOULD BE REQUIRED READING FOR EVERY AMERICAN WHO IS VOTING AGE.


One thing I found consistent in all the reports is that federal Tax Expenditures typically exceed discretionary spending ($553 billion for FY2010) and national defense ($681 billion for FY2010) combined. That in it self should give you some sort of relevancy of what Tax Expenditures could buy.


Related Reports In This Series

Corporate Subsidies

Oil and Gas Industry Subsidies

Farm Subsidies

Accompanying Post for All Four Subsidy Reports


Additions to This Report






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