Over Half The Benefits of The Top 10 Federal Tax Expenditures Go To The Top 20% Income Earners

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A report released this week by the CBO examining the 10 largest 2012 federal income tax expenditures found that the top 20% of wage earners received over 50% of expenditures, with 17% having gone to the top 1%, and the bottom 20% accounted for less than 10%. It also found that the middle class receives the least benefit when measured relative to after-tax income, at about 7%. These federal “tax expenditures”, named so because they “contribute to the federal budget deficit”, include: itemized deductions, charitable contributions, “preferential tax rates on capital gains and dividends”, tax credits, mortgage interest payments, some Social Security benefits and employer-sponsored health insurance.

The 10 largest expenditures amount to about 2/3s of the, “total budgetary effects of all tax expenditures for 2013”, and together account for more than $900 billion, or 5.7% of GDP. That means while 1%ers like Rush Limbaugh and Mitt Romney complained about the 47% of Americans not earning enough to pay federal income taxes, their income quintile raked in almost half a trillion dollars in direct tax benefits from said federal government. The different types of expenditures are strongly correlated to income level. The CBO estimates that 70% of benefits of reduced tax rates on capital gains went to households with incomes in the top 1%, while about half of the benefits from the earned income tax credit went to households in the bottom 20%.

President Obama addressed concerns over inequalities in our tax system in his reelection campaign as well as in his plans to raise revenues during recent budget talks. Asking the wealthy to “pay their fair share” became the President's go-to bumper sticker phrase that sympathized with the frustrations of the middle class. This was met with cries of “class warfare” by the far-right and for once I agreed. Not only are tax expenditures distributed unfairly, but incomes themselves have been rising for the top earners while at best staying flat for the middle class. Average CEO pay rose from about 40 times an average worker's pay in 1980 to 263 times in 2009. Do employees really believe that their company's CEOs are working that much harder than they are for a paycheck? Now average working Americans receiving the short end of our growing inequality can see definitively why getting ahead has been so hard lately — if you want to get rich, it's best to start that way. That revelation is antithetical to the concept of the American Dream, that working hard will afford you a better life. If as a nation we really believe in equality and justice, we should start to demand a little more of it on our tax code.

Click below the jump for a link to the full report….Congressional Budget Office: “The Distribution of Major Tax Expenditures in the Individual Income Tax System


About Author

Joe Deshotel

Joe was born and raised in Beaumont, Tx, but live music and politics brought him to Austin. He has worked in and around government and elections for over a decade including for a member of US Congress, the Texas Legislature, the Mayor of Austin. He currently serves as Communications Director for the Travis County Democratic Party. He is most interested in transportation, energy and technology issues. He also likes Texas Hold'em and commuting on his electric skateboard. Follow me on Twitter at @joethepleb.


  1. Household Before Tax Income Levels
    I think that information on the average before-tax household income for each quintile would be helpful. This is the information from 2009, but the figures are probably different for 2012.

    The Lowest Quintile was $23,500; Second Quintile was $43,400; Middle Quintile was $64,300; Fourth Quintile was $93,800; and the Highest Quintile was $223,500. The top 1% was $1,219,700.

    Source: http://www.cbo.gov/publication…  

  2. Really?
    These federal “tax expenditures”, named so because they “contribute to the federal budget deficit”again.

    Let us redefine common sense yet again.

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