I despise when people say "Shocker" in front of a statement of fact, as a snide reminder of their own urbane ennui. If something is that unsurprising, why bother saying it all, you know? With that in mind, SHOCKER: the U.S. tax code is designed to help the wealthy.
I apologize. Please pardon that use of "SHOCKER," which felt almost physically irresistible. In this case, though, the underlying facts— via a new Congressional Budget Office report on our nation's largest tax breaks— are still worth passing on, as a useful and factual reminder that, for all of the heated political rhetoric we hear about "big government," that "big government" is still tilted in favor of those who need its help the least.
The new report finds, in short, that a hugely outsized percentage of tax deductions (which can be thought of as government expenditures) accrue to the wealthiest households in America. The top 20% of income earners get more than half of all tax break revenue; the top 1% of income earners gets 17%. "Well," you might say, in a goofy Republican voice, "sure they do, because they pay more taxes, in absolute dollar terms!" But even when measured as a portion of after-tax income, tax breaks "are largest for the lowest and highest income quintiles."
The very poor get subsidized, in other words, as well as the very rich. The middle class gets squeezed.
The largest tax break is untaxed employer health insurance. But the next largest, via the LA Times:
The next two are the tax-free savings of 401(k) and other retirement and pension plans and the special treatment of dividends and capital gains, which are taxed at a 20% rate for households earning above $450,000 — a lower rate than for ordinary income.
Both of those tax breaks accrue heavily to top-income households, those making more than $462,500 a year, the report said. In fact, almost 70% of the benefit of the lower tax rate for capital gains and dividends is "going to households in the top percentile."
That's $180 billion in tax breaks— which are the same as government expenditures— going to benefit the rich, by keeping the tax rate on their investments lower than the tax rate that a middle class teacher pays on her income.
This is a poor use of government money.