Next Round of Deficit Reduction Must Tackle Hidden Spending in the Tax Code

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Next Round of Deficit Reduction Must

Tackle Hidden Spending in the Tax CodeHow to Avoid the Sequester and Achieve Truly BalancedDeficit Reduction in the Wake of the Recent Fiscal Cliff Deal

Seth Hanlon January 22, 2013

As Washingon heads ino he nex round o budge negoiaions, congressional

Republicans are again assering ha every dollar o uure deci reducion muscome rom cuting governmen programs and services, no rom addiional revenue.1

Congress has already cu spending subsanially, however: Tree-quarers o he $2.4

rillion in deci reducion ha had been enaced since 2011 has been in he orm

o spending cus, and only one-quarer has come rom increasing revenue.2 While

Congress raised he op marginal ax rae in he recen legislaive deal o avoid he scal

cli, i has no even begun o ackle he vas array o ax breaks ha disproporionaely

bene upper-income Americans, nor has i addressed he many loopholes enjoyed

by large corporaions. Tese special ax breaks mus be on he able going orward i

Congress is commited o a balanced approach o solving our scal challenges.

Tis issue brie idenies abou $1 rillion in poenial savings over 10 years ha can be

gained rom reducing or reorming ax breaks or high-income individuals and corpora-

ions. Ta amoun would be more han enough o replace he so-called sequeser, he

sudden and indiscriminae cus o governmen programs ha are now scheduled o ake

eec saring in March.3

Tese common-sense reducions in ax breaks are ar preerable o many o he alerna-

ives: allowing he sequeser o kick in; enacing deeper cus o discreionary spend-

ing programs, which have already been cu o he bone; or reducing Social Securiy,

Medicare, or Medicaid benes.

Tis $1 rillion by no means comes rom an exhausive lis. I Congress is commited o a

balanced approach o solving our scal challenges and is serious abou ax reorm, here

are even greaer poenial savings. Bu he $1 rillion in addiional revenue is a reasonable

sep o ake. And alhough i seems unlikely, i Congress were o achieve he nex $1 ril-

lion in deci reducion solely on he revenue side, he raio o spending cus o revenue

increases in he major budge deals over he pas wo years would be abou 1-o-1.4

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In many ways, he disincion beween spending cus and revenue increases is an aricial

one. Many ax breaks are simply governmen-spending programs delivered hrough he ax

code. As economiss have emphasizedand as many leading Republicans have acknowl-

edged5he resul is he same wheher he governmen spends a dollar direcly or delivers

a dollar in ax breaks aimed a cerain recipiens or aciviies. Ye ax breaksalso known

as ax expendiuresreceive ar less scruiny han direc governmen spending and, as a

resul, are oen inecien, oudaed, or in need o reorm. Wih his in mind, i makes litlesense o leave revenue o he able in he ongoing budge negoiaions.

Below, we consider ax code spending ha benes high-income and wealhy individu-

als, ollowed by ax code spending ha benes corporaions and oher businesses.

Note: We have provided links to the sources o the revenue estimates, most o which are om

ocial sources. We note, however, that the estimates were done beore the recent tax agreement

and could thereore change based on the new tax rates and other actors.

Table 1

$1 trillion of special tax breaks on the table

Additional revenue rom reducing and reorming tax breaks ($ billions over FY13-22)

Limit extra deductions enjoyed by top-bracket taxpayers $520

Close international tax loopholes and incentives to move jobs overseas $168

Eliminate write-ofs or corporate meals and entertainment $140

End special tax breaks or inventory $67

Eliminate special oil, gas, and coal tax breaks $25

Close loopholes in the estate and git taxes $24

Close the "carried interest" loophole or hedge und and pr ivate equity und managers $21

Eliminate the John Edwards-Newt Gingrich "S Corporation" loophole $11

Deny mortgage deduction or vacation homes and yachts $10

Reduce the "tax gap" through better enorcement against tax cheats $10

Close tax loophole or derivatives traders $3

Eliminate corporate jet loophole $3

Eliminate special write-ofs or horse breeders (Bluegrass Boondoggle) $0.1 ($126 million)

Total $1,003

Source: Congressional Budget Oce, Joint Tax Committee, Treasury Department, Committee or a Responsible Federal Budget, authors calculations.

All estimates preceeded the enactment o the American Taxpayer Relie Act and some may overlap.

Tax breaks for high-income and wealthy individuals

Te American axpayer Relie Ache deal passed o avoid he scal cliallowed

ordinary income ax raes o rise o heir 1990s levels or amilies earning more han

$450,000 and singles earning more han $400,000 while resoring cerain phase-ou

provisions and modesly increasing ax raes on capial gains and dividends.6 Te op ax

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raes on ordinary income and capial gains are now

abou where hey were in he 1990shough sill

low by hisorical sandards. (see Figure 1) While

he ax increases did pass, hey are modes: Te

riches 1 percen o Americans will see heir overall

ax raes rise by 3 percen in 2013 as a resul o he

legislaion. Ta is signicanly less han he 5.3percen increase ha would have occurred under

Presiden Barack Obamas ull revenue proposals

and he poenial 7.2 percen increase had Congress

done nohing and le all ax cus expire.7

o pu ha 3 percen increase in perspecive, keep

in mind ha beween 1979 and 2007, he infaion-

adjused aer-ax incomes o he riches 1 percen

o Americans rose by more han 300 percen8

compounding annually in real erms a an averagerae o more han 5 percen per year.9 Given hisoric

income growh, he wealhies 1 percen will likely

make up or he ax increase in real erms in a shor

amoun o ime.

Te botom line is ha he wealhies Americans can conribue subsanially more o

deci reducion. A his poin, he bes way o raise he needed revenue is by reduc-

ing he hidden spending delivered by ax breaks and ax loopholes. Here are some

ways we can do ha, as well as how much aking each acion could save.

Limit the extra benefit top-bracket taxpayers receive from tax breaks: $520 billion

Mos ax benes and incenives come in he orm o deducions or exclusions. Boh are

provisions ha reduce ones axable income and include many o he mos imporan

and mos coslyax breaks, such as hose or morgage ineres, chariable giving,

employer-provided healh insurance, and reiremen savings. One o he unorunae

and largely uninended eecs o srucuring ax benes as deducions or exclusions is

ha hey end o provide much bigger ax benes o hose in he highes ax brackes.

For a wealhy axpayer in he highes ax brackenow 39.6 percena $10,000 iem-

ized deducion, such as one or morgage ineres, resuls in $3,960 in ax savings. For a

axpayer in he 15 percen bracke, however, ha same deducion is worh only $1,500.

Tis upside-down eec is no only unair, bu i s also inecien rom a budgeary

poin o view: I gives he larges ax break o he people who are leas likely o need i

FIGURe 1

Marginal federal tax rates since World War II

Ordinary income (wages, sel-employment income, interest, etc.)

and capital gains rates

0

20

40

60

80

100

Top ordinary income tax rateTop capital gains tax rate

Rates set by American

Taxpayer Relief Act

1950 1960 1970 1980 1990 2000 2010 2020

Notes: From 1971 to 1982, the top rate on unearned income other than capital gains (e.g. interest, dividends)

was 70 percent. Beginning in 2003, the capital gains rate applied to qualied dividends as well. Top rates

include the efect o the Pease limitation or relevant years and Medicare taxes.

Source: Authors calculation based on http://www.ctj.org/pd/regcg.pd and H.R. 8, American Taxpayer Relie

Act (112th Cong.), as enacted.

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and also leas likely o respond o he incenive. High-income people, or example, are

already likely o be homeowners, and hey would hereore likely use disposable income

o save or reiremen even wihou a ax incenive.10 We would no olerae i i a ederal

spending program disribued benes in such an inecien wayand we should be

equally cos conscious wih programs and subsidies ha operae hrough he ax code.

Te presiden has proposed addressing his inecien upside-down eec by limi-ing ax breaks or he highes-income Americans: People whose high incomes place

hem in he op ax brackes would be able o claim he same value rom deducions

ha a middle-class axpayer in he 28 percen bracke ges, bu no more. Tis proposal

would make ax breaks airer and more ecien while raising subsanial revenue. In

2012 i was esimaed ha such a proposal would raise $520 billion over 10 years.11

(Te American axpayer Relie Ac would reduce his esimae somewha over he

same 10-year budge window. Also, i policymakers creae a separae higher limi or

chariable deducionsan idea reporedly under discussion in he scal cli alkshe

revenue esimae would be urher reduced.)

For hose concerned abou he eec o such a policy on incenives or homeownership,

reiremen savings, or oher areas, i should be noed ha he 28 percen incenive under he

presidens proposal is greaer han ha o recen House Republican budges, which cap ax

raes a 25 percen, eecively limiing he value o deducions o 25 percen. weny-eigh

percen is also he level ha was pu in place by he legendary 1986 ax reorm, which se

he op marginal rae a 28 percen. Te incenives reained under he presidens pro-

posal are also much sronger and more sensible han he ones reained under proposals o

impose a dollar cap on deducions, an idea foaed by presidenial candidae and ormer

Massachusets Gov. Mit Romney (R) and some congressional Republicans.12

O he proposals under consideraion, he presidens proposal is simply he mos

progressive and mos ecien way o achieve savings rom major ax expendiures while

also addressing ax code unairness. Te Cener or American Progress and ohers have

advocaed a more undamenal reorm: urning deducions ino credis ha provide he

same bene or all axpayers. Te presidens proposal does no go ha ar, bu i is sill

a major sep oward a more raional ax code.

Close loopholes in the estate and gift tax: $24 billion

Te recen ax deal was a boon or heirs o mulimillion-dollar esaes. Tough he highes

esae ax rae will rise rom 35 percen o 40 percen, he American axpayer Relie Ac

permanenly locked in he very high esae and gi ax exempions approved by Congress

wo years ago, wih hose exempion levels rising wih infaion in he uure. For 2013 he

exempion will be $5.25 million per person.13 Ta means ha he heirs o a couples esae

can inheri $10.5 million o wealh ax ree, even wihou any creaive esae planning.

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Given he cosly exension o esae ax cus and he ac ha he esae ax is now limied

o he larges 0.14 percen o esaes, i is now even more imporan ha Congress address

loopholes in he esae ax ha enable he ax-ree ranser o even greaer sums o heirs.14

In a recen op-ed, Harvard economis and CAP Disinguished Senior Fellow Lawrence H.

Summers did some simple mah o pu our broken esae ax sysem in perspecive:15

Assets that are passed to relatives or other personal relations are oen badly misvalued

relative to what they cost on an open market. Te total wealth o American households

is estimated at more than $60 trillion. It is heavily concentrated in very ew hands. A

conservative estimate given the liespans o Americans would be that 2 percent ($1.2

trillion) is passed down each year, mostly om the very rich. Yet estate and gi taxes

raise less than $12 billion, or just 1 percent o this fgure each year.

Esae ax planning sraegies come in many dieren orms.16 Presiden Obamas budge

idenies several reorms o preven people rom undervaluing asses or seting up cer-

ain russ o pass asses o heirs ree o ax. Te reasury Deparmen esimaed in 2012ha hese reorms would raise $24 billion over 10 years, an amoun ha probably jus

scraches he surace when i comes o esae ax loopholes.17

Close the carried interest loophole for hedge fund and private equity managers:

$21 billion

Remember Gov. Romney? He may have le he poliical scene since he November elec-

ions, bu he coninues o bene rom he so-called carried ineres loophole o he une

o millions o dollars.18

Tis loophole permis he managers o invesmen unds such ashedge unds and privae equiy unds o rea he bulk o heir compensaioncalled he

carryas capial gain raher han as ordinary income.19 Te carried ineres loophole is

unair because or individuals a almos every oher job, income rom ones eors is gener-

ally axed a ordinary income raes. In oher words, people wih regular jobs don have he

opporuniy o urn heir income ino ligher-axed capial gains. Te loophole represens

an inecien and waseul subsidy or he proessions ha bene rom i.

Te new ax bill le capial gains raes rise, bu highly compensaed und managers can

sill save more han 15 percen in axes by exploiing he carried ineres loophole. In

2011 he Congressional Budge Oce esimaed ha closing he loopholerequiring

und managers o pay ordinary ax raes on heir enire compensaionwould raise $21

billion over 10 years.20

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Eliminate the John Edwards-Newt Gingrich S Corporation loophole: $11 billion

Cerain highly paid proessionals someimes ake advanage o a ax loophole made

inamous by ormer Speaker o he House New Gingrich (R-GA) and ormer Sen. John

Edwards (D-NC).21 Tese proessionalslawyers, accounans, docors, consulans,

and enerainmen proessionalsorm S corporaions, whose pros are no subjec

o Medicare axes and who characerize much o heir income as pros o he businessinsead o salaries. Regular wage-earners can do his, and neiher can he owners o

oher kinds o small businesses. Governmen wachdogs have fagged he S corporaion

loophole as an area o rampan abuse.22 Legislaion inroduced in he House and Senae

in recen years would shu down his loophole, requiring hese well-heeled proessionals

o pay heir air share ino Medicare, which would raise $11 billion over 10 years.23

Deny mortgage deduction for vacation homes and yachts: $10 billion

Te morgage ineres deducion is inended o promoe homeownership, bu he axcode allows people o claim i no only on one propery bu wo. Moreover, under cur-

ren Inernal Revenue Service rules, a second home doesn have o be a housei can

be a large boa, oo.24 Under he rules, boas can qualiy as second homes eligible or he

ax break only as long as hey conain sleeping spaces, bahrooms (heads), and kichens

(galleys). In oher words, only large boas qualiy.

Tis is a perec illusraion o how a ax break inended o help middle-class people

aord homes winds up subsidizing lavish liesyles and cosing more han i should. I

makes litle sense o mainain ax breaks on vacaion properies or yachs while regular

homeowners who can aord such luxuries can claim only a deducion on one homeand reners receive no deducion a all, especially a a ime when budge consrains have

pu ederal housing programs a risk. We esimae ha limiing he morgage ineres

deducion o primary residences would raise a leas $10 billion over 10 years.25

Close tax loophole for derivatives traders: $3 billion

Warren Buet calls26 his one o he exraordinary ax breaks or he mega-rich: Due

o a special rule in he ax code,27 cerain derivaives raders pay a blended rae on heir

income60 percen a avorable long-erm capial gains raes and 40 percen a ordi-

nary income raes.

Alhough invesors mus generally hold ono asses or one year in order o enjoy

low-rae capial gain reamen, raders who buy and sell derivaives are eligible or he

blended rae even i hey buy and sell insanly. Te loophole was carved ou a genera-

ion ago o proec invesors in commodiies uures whose purpose was o proec long-

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erm pros, no engage in shor-erm speculaion. Bu nancial markes have changed,

and as Buet explains, a rader can own sock index uures or 10 minues and ge he

avorable ax reamen as i heyd been long-erm invesors.

Sen. Carl Levin (D-MI) inroduced legislaion in he las Congress o close his loop-

hole.28 Te Obama adminisraion esimaes ha doing so would raise nearly $3 billion

over 10 years.29

Corporate and business tax breaks

Te $2.4 rillion o deci reducion since 2011 has le corporae axes unouched even

hough he corporae ax has been a declining revenue source30 and special subsidies or

businesses abound in ax code. In ac, he American axpayer Relie Ac included a wo-

year exension o more han 30 separae corporae and business ax breaks a a cos o $46

billion. Is ime o include corporae ax breaks as par o a plan or deci reducion.

Close international tax loopholes and incentives to move jobs overseas: at least

$168 billion

Te bigges corporae ax loopholes are ound in he ax rules or mulinaional corpora-

ions operaing overseas. Te U.S. ax code subsidizes oshore invesmen in myriad

ways, semming rom he abiliy o U.S. mulinaionals o deer axes on heir oreign

income. As a new Congressional Budge Oce repor explains:31

Te current tax system provides incentives or U.S. frms to locate their productionacilities in countries with low taxes as a way to reduce their tax liability at home.

Tose responses to the tax system reduce economic eciency because the frms are

not allocating resources to their most productive useTe current system also creates

incentives to shi reported income to low-tax countries without changing actual invest-

ment decisions. Such proft shiing erodes the corporate tax base and leads to wasted

resources or tax planning.

Presiden Obamas proposals o close inernaional ax loopholes would raise a com-

bined $168 billion32 while helping o level he playing eld or invesmen in he Unied

Saes. Tese proposals include:33

Prevening corporaions rom aking immediae deducions or ineres expense

relaed o ax-deerred oreign income Deermining oreign ax credis on a pooling basis o limi cross-crediing Cracking down on ax-avoidance schemes involving he ranser o inangible propery

o oshore locaions

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Limiing he abiliy o cerain corporaions (dual capaciy axpayers) such as oil

and mining companies o claim oreign ax credis or disguised royalies and oher

nonincome ax iems

Eliminate write-offs for corporate meals and entertainment: up to $140 billion

Eaing and enerainmen are personal expenses. I an individual akes his amily ou o

dinner, he canno deduc he cos o ha meal rom his axable income. I, however, ha

same individual akes someone ou o lunch and claims i is or a business purpose, hen

IRS rules allow him o deduc hal o he cos o he meal. Tis special excepion acs as

an unnecessary subsidy or many people who can bene rom expense accouns and

heir guess while poenially skewing business decision making in inecien ways.34

Allowing deducions or business meals and enerainmen also resuls in an unknown

quaniy o abuse and raud, wih personal expenses classied as business expenses

and he IRS ill-equipped o police he legiimacy o he deducions.35

Enirely eliminaing meal and enerainmen deducions would raise $14 billion per

year, while reducing he deducion o 25 percen would raise $7 billion per year, accord-

ing o esimaes rom he Commitee or a Responsible Federal Budge.36

End special tax breaks for inventory: $67 billion

Te ax code allows companies o choose he mos avorable mehod o valuing heir

invenory and cos o goods sold, and many axpayers choose he Las In, Firs Ou,

or LIFO, mehod, which can provide a subsanial ax-deerral bene. LIFO, how-ever, has been described as an inecien and unnecessary subsidy or cerain busi-

nesses.37 Furhermore, Inernaional Financial Reporing Sandards do no allow he use

o he LIFO mehod, meaning ha is use poses an obsacle o conormiy wih hese san-

dards.38 Phasing ou LIFO over a ransiion period, as well as a similarly fawed accouning

mehod known as Lower o Cos or Marke, would raise $67 billion over 10 years.39

End special fossil-fuel tax breaks: $25 billion

Te oil and gas indusry is one o he mos proable indusries on earh. Te op ve

mulinaional oil and gas companies have repored nearly $1 rillion in pros his

decade, and ye he oil and gas indusry coninues o collec billions in ax subsidies.40

wo o he major subsidiesexpensing o inangible drilling coss and percenage

depleionwere enaced in 1916 and 1926, respecively. oday he oil and gas indusry

is a maure, exremely proable indusry enjoying windalls rom oil prices approach-

ing $100 per barrel.41 Te indusry simply does no need billions in special ax breaks as

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an incenive o do wha i already does. Moreover, in 2009 he G-20 naions agreed o

phase ou inecien and waseul ossil-uel subsidies.42

Eliminaing he ollowing ossil-uel indusry ax breaks would save nearly $25 billion43

over 10 years:

Expensing o inangible drilling coss Percenage depleion or oil and gas wells wo-year geological and geophysical amorizaion period or independen producers Deducion or eriary injecans Exempion o passive loss limiaion or working ineres in oil and naural gas properies Expensing, percenage depleion, and capial gains ax breaks or coal

Eliminate corporate jet loophole: $3 billion

Te ax code includes innumerable subsidies ha disor he choices made by busi-nesses. One loophole ha has drawn inense scruiny is he ax reamen o corporae

jes. Companies can wrie o he coss o corporae je purchases over ve years, even

hough passenger jes mus be depreciaed over seven years and he planes acually las

or decades. Closing he corporae je loopholeha is, simply applying he rule or

commercial jes o corporae jeswould raise $3.2 billion over 10 years.44

Eliminate special write-offs for horse breeders (the Bluegrass Boondoggle):

$126 million

A special ax break45 slipped ino he 2008 arm bill allows horse breeders o wrie o

heir invesmenshe horsesover hree years. A repor46 conduced by he reasury

Deparmen deermined ha racehorses acually have a much longer useul lie. A aser,

hree-year depreciaion schedule represens an unwarraned subsidy or he breeders

and coss a repored $126 million over 10 years.47

Conclusion

All old, his hidden spending hrough he ax code adds up o roughly $1 rillion in

poenial budge savingsabou enough o urn o he sequeser while nearly sabiliz-

ing he naions deb over he nex 10 years. And hese are nowhere near he ull lis o

areas or poenial savingsincluding loopholes or cruise ship operaors,48 loopholes

ha allow companies o deer capial gains axes using like kind exchanges,49 an enor-

mous ax break50 called sepped up basis ha is he major reason why abou hal o all

capial gains avoid ax permanenly,51 and many, many more.

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We can also recoup billions in los revenue simply by enorcing he law beter and crack-

ing down on ax cheas. Te IRS esimaes ha in 2006, despie enorcemen eors, he

Unied Saes los nearly $400 billion in revenue rom unpaid and unrepored axesa

number ha probably underesimaes he revenue loss rom oshore aciviy.52 Our $1

rillion in revenue includes he $10 billion53 ha he Join ax Commitee esimaes can

be raised rom several proposals by Presiden Obama o reduce he ax gap. Bu ha is

jus he ip o he iceberg.

I is likely ha he nex round o deci reducion will include a mix o spending cus

and revenues. Bu even i he enire nex round comes rom revenuesin oher words,

i Congress replaces he sequeser wih roughly $1 rillion in new revenue rom reducing

ax breakshe overall raio o deci reducion since 2011 would only hen approach 1

o 1 beween program cus and revenue.

Ta is wha a ruly balanced approach o deci reducion looks like.

Seth Hanlon is the Director o Fiscal Reorm at the Center or American Progress.

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Endnotes

1 Vicky Allen, Republican Sen. McConnell rules out moretaxes in U.S. scal ght, Reuters,January 6, 2013, availableat http://www.reuters.com/article/2013/01/06/us-usa-scal-idUSBRE8A80WV20130106.

2 Spending cuts ave totaled about $1.8 trillion (includingabout $300 billioin in interest savings), while the recenttax agreement raised about $630 billion in new revenue.

See Michael Linden and Michael Ettlinger, The DecitReduction We Have Achieved So Far, Center or AmericanProgress, January 8, 2013, available at http://www.ameri-canprogress.org/issues/budget/news/2013/01/08/49137/the-decit-reduction-we-have-achieved-so-ar/.

3 Last August the Congressional Budget Oce estimated thatthe sequester would reduce spending by $972 billion overscal years 2013-2022, not including interest savings. See:Congressional Budget Oce, An Update to the Economicand Budget Outlook: Fiscal Years 2012 to 2022 (2012),table 1-5. In the New Years Day tax agreement, Congressreplaced two months worth o the sequester. New CBOestimates are due February 4.

4 Linden and Ettlinger, The Decit Reduction We HaveAchieved So Far.

5 See, or example: Speaker John Boehner, Remarks on Jobsand the Economy, Cleveland, Ohio, August 24, 2010, avail-

able at http://boehner.house.gov/news/documentsingle.aspx?DocumentID=203967. [W]e need to acknowledgethat what Washington sometimes calls tax cuts are reallyjust poorly disguised spending programs that expand therole o government in the lives o i ndividuals and employ-ers; Rep. Dave Camp, Remarks Beore the Tax Council,November 16, 2010, available at http://camp.house.gov/up-loadedles/camp_tax_policy_speech_nal.pd. [W]e mustadmit that not all o [recent] spending has been throughincreased appropriations or expanded entitlements; mucho it has been through the backdoor prolieration o taxexpendituresprovisions that technically reduce some-ones tax liability, but that in reality amount to spendingthrough the tax code; Alan Greenspan, Testimony beorethe Senate Committee on Finance Subcommittee on FiscalResponsibility and Economic Growth, September 13, 2011,available at http://www.nance.senate.gov/imo/media/doc/Greenspan%20Testimony.pd.

6 T12-0427 - The American Taxpayer Relie Act o 2012

(ATRA) as Passed by the Senate Major Individual Income Taxand Estate Tax Provisions Excludes Certain Business Extend-ers and o ther Provisions Baseline: Current Policy, availableat http://www.taxpolicycenter.org/numbers/displayatab.cm?DocID=3754.

7 Administrations FY2013 Budget Proposals Major IndividualIncome and Corporate Tax Provisions Baseline: CurrentPolicy Distribution o Federal Tax Change by Cash IncomePercentile, 2013, available at http://www.taxpolicycenter.org/numbers/displayatab.cm?Docid=3305&DocTypeID=2.

8 The incomes o the top 1 percent declined sharply duringthe recession (the growth in real ater-tax incomes rom1979-2009 was still 155 percent), but have bounced backaster than all other groups. See, or example: TimothyNoah, The One Percent Bo unce Back,The New Republic,March 4, 2012, available at http://www.tnr.com/blog/timothy-noah/101369/the-one-percent-bounce-back.

9 Congressional Budget Oce, The Distribution o House-

hold Income and Federal Taxes, 2008 and 2009 (2012),available at http://cbo.gov/publication/43373.

10 See Lily Batchelder and Eric Toder, Government SpendingUndercover (Washington: Center or American Progress,2010), available at http://www.americanprogress.org/issues/tax-reorm/report/2010/04/13/7580/government-spending-undercover/.

11 Joint Committee on Taxation, Description o the PresidentsBudget Proposals (2012), available at https://www.jct.gov/publications.html?unc=select&id=7

12 Alan Wirzbicki and Callum Borchers, Questions on Rom-neys Proposal to Cap Tax Deduction,The Boston Globe,October 5, 2012, available at http://www.bostonglobe.com/news/nation/2012/10/04/mitt-romney-limit-tax-deduc-tions-could-aect-middle-class-wealthy-most/mRvRdYY-MuTNzF8ekvnaQWJ/story.html.

13 James Nunns and Jerey Rohaly, Tax and Provisions in the

American Taxpayer Relie Act o 2012 (Washington: TaxPolicy Center, 2013), available at http://www.urban.org/UploadedPDF/412730-Tax-Provisions-in-ATRA.pd

14 Estate Tax Returns and Liability Under Current Lawand Various Reorm Proposals, 2011-2022, available athttp://www.taxpolicycenter.org/numbers/displayatab.cm?Docid=3775&DocTypeID=7.

15 Lawrence Summers, How to Target Untaxed Wealth,Reuters, December 17, 2012, available at http://blogs.reuters.com/lawrencesummers/2012/12/17/how-to-target-untaxed-wealth/.

16 Jesse Drucker, Romney I Dig It Trust Gives Heirs TripleBenet, Bloomberg,September 27, 2012, available at http://www.bloomberg.com/news/2012-09-27/romney-i-dig-it-trust-gives-heirs-triple-benet.html; Calvin H. Johnson andJoseph M. Dodge, Passing Estate Tax Values Through theEye o the Needle (Austin, TX: University o Texas School o

Law, 2011), available at http://papers.ssrn.com/sol3/papers.cm?abstract_id=1924339.

17 General Explanations o the Administrations Fiscal Year 2013Revenue Proposals (Department o the Treasury, 2012) avail-able at http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2013.pd.

18 Nicholas Conessore, Christopher Drew, and Julie Creswell,Buyout Prots keep Flowing to Romney, The NewYorkTimes, December 18, 2011, available at http://www.nytimes.com/2011/12/19/us/politics/retirement-deal-keeps-bain-money-fowing-to-romney.html?pagewanted=all&_r=2&.

19 Seth Hanlon and Gadi Dechter, Congress Should Close theCarried Interest Loophole, Center or American Progress,December 18, 2012, available at http://www.american-progress.org/issues/tax-reorm/news/2012/12/18/48469/congress-should-close-the-carried-interest-loophole/.

20 Congressional Budget Oce, Reducing the Decit:Spending and Revenue Optio ns (2011), available at http://www.cbo.gov/sites/deault/les/cboles/tpdocs/120xx/doc12085/03-10-reducingthedecit.pd.

21 Seth Hanlon, Senates Tax Code Fix Is a Way to Keep StudentLoans Aordable, Center or American Progress, May 7,2012, available at http://www.americanprogress.org/issues/tax-reorm/news/2012/05/07/11515/closing-tax-loophole-to-pay-or-student-loan-bill-is-simply-common-sense/.

22 Government Accountability Oce, Tax Gap: ActionsNeeded to Address Noncompliance with S Corporation TaxRules, GAO-10-195, Report to the Committee on Finance,U.S. Senate, December 2009; Actions Are Needed to EliminateInequities in the Employment Tax Liabilities o Sole Proprietor-ships and Single-Shareholder S Corporations (Department othe Treasury, 2005), available at http://www.treasury.gov/tigta/auditreports/2005reports/200530080r.html.

23 Michael Cohn, Lawmaker Introduces Bill to Close Newt

Gingrich Medicare Tax Loophole,Accounting Today, Janu-ary 31, 2012, available at http://www.accountingtoday.com/news/Lawmaker-Introduces-Bill-Close-Newt-Gingrich-Medicare-Tax-Loophole-61568-1.html;Pete Kasperowicz,Sen. Reid Proposes Changing Tax Law to Pay or LowerRate on Student Loans,The Hill, April 25, 2012, available athttp://thehill.com/blogs/foor-action/senate/223613-reid-proposes-student-loan-bill-with-s-corp-tax-oset; Citizensor Tax Justice, Policy Options to Raise Revenue (2012),available at http://ctj.org/ctjreports/2012/03/policy_op-tions_to_raise_revenue.php

7/29/2019 Next Round of Deficit Reduction Must Tackle Hidden Spending in the Tax Code

12/12

12 C t A i P | N t R d D i it R d ti M t T kl Hidd S di i th T C d

24 Internal Revenue Service, Publication 936 (Department othe Treasury, 2012), available at http://www.irs.gov/publica-tions/p936/ar02.html#en_US_2011_publink1000229900.

25 The $10 billion gure is based on our extrapolations opriorCBO estimates, and it does not refect interaction with the28 percent deduction limit proposal.

26 Warren E. Buet, Stop Coddling the Super-Rich, The NewYork Times, August 14, 2011, available at http://www.nytimes.com/2011/08/15/opinion/stop-coddling-the-super-rich.html.

27 Andrew Ross Sorkin, An Addition to the List o Tax Loop-

holes, The New York Times, July 11, 2011, available at http://dealbook.nytimes.com/2011/07/11/an-addition-to-the-list-o-tax-loopholes/.

28 Closing the Derivatives Blended Rate Loophole Act, S. 2033(112th Congress).

29 General Explanations o the Administrations Fiscal Year 2013Revenue Proposals (Department o the Treasury, 2012), avail-able at http://www.treasury.gov/resource-center/tax-policy/Documents/General-Explanations-FY2013.pd.

30 Jared Bernstein, comment on Corporate Tax Reorm Shouldbe Revenue Positive, The Jared Bernstein Blog, commentposted on January 7, 2013, available at http://jaredbern-steinblog.com/corporate-tax-reorm-should-be-revenue-positive/.

31 Congressional Budget Oce, Options or Taxing U.S. Multi-national Corporations, CBO-4150, Report to the Chairman,

Committee on the Budget, Senate, January 2013

32 Joint Committee on Taxation, Estimated Budget Efects othe Revenue Provisions Contained in the Presidents Fiscal Year2013 Budget Proposal, JCX-27-12, March 21, 2012

33 A complete list and descriptions o the presidents interna-tional tax reorm proposals can be ound in: General Explana-tions o the Administrations Fiscal Year 2013 Revenue Proposals.

34 Richard Schmalbeck and Jay A. Soled, Elimination o theDeduction or Business Entertainment Expenses, Tax Notes,May 11, 2009, available at http://scholarship.law.duke.edu/cgi/viewcontent.cgi?article=2733&context=aculty_scholarship.

35 Schmalbeck and Soled, Elimination o the Deduction orBusiness Entertainment Expenses.

36 Corporate Tax Reorm Calculator, available at http://crb.org/corporate/.

37 Edward D. Kleinbard, George A. Plesko, and Corey M. Good-man, Is it Time to Liquidate LIFO?, Tax Notes, October 16,2006, available at http://www.taxhistory.org/www/eatures.ns/Articles/93826E71D9A58FB28525726B006E2140?OpenDocument.

38 Robert Bloom and William J. Cenker, The Death o LIFO?,Journal o Accountancy, January 2009, available at http://www.journaloaccountancy.com/issues/2009/jan/deathofi-o.htm.

39 Joint Committee on Taxation, Estimated Budget Efects othe Revenue Provisions Contained in the Presidents Fiscal Year2013 Budget Proposal.

40 Seth Hanlon, Big Oils Misbegotten Tax Gusher,Center or American Progress, May 5, 2011, available athttp://www.americanprogress.org/issues/tax-reorm/news/2011/05/05/9663/big-oils-misbegotten-tax-gusher/.

41 Energy and Oil Prices, available at http://www.bloomberg.com/energy/

42 Leaders Statement, The Pittsburgh Summit, Sept. 24-25,

2009, http://www.treasury.gov/resource-center/internation-al/g7-g20/Documents/pittsburgh_summit_leaders_state-ment_250909.pd.

43 Joint Committee on Taxation, Estimated Budget Efects othe Revenue Provisions Contained in the Presidents Fiscal Year2013 Budget Proposal.

44 Ibid.

45 Steven T. Dennis, Democrats Target McConnells Horse-Racing Tax Break, Roll Call, June 30, 2011, available at http://www.rollcall.com/issues/56_148/mitch-mcconnell-horse-racing-tax-break-206938-1.html.

46 Report to Congress on the Depreciation o Horses (Depart-ment o the Treasury, 1990).

47 Dennis, Democrats Target McConnells Horse-Racing TaxBreak.

48 David Leonhardt, The Paradox o Corporate Taxes, TheNew York Times, February 1, 2011, available at http://www.nytimes.com/2011/02/02/business/economy/02leonhardt.html?_r=1&.

49 David Kocieniewski, Major Companies Push the Limitso a Tax Break, The New York Times, January 6, 2013,available at http://www.nytimes.com/2013/01/07/busi-ness/economy/companies-exploit-tax-break-or-asset-exchanges-trial-evidence-shows.html?pagewanted=2&_r=1&nl=todaysheadlines&emc=edit_th_20130107.

50 Seth Hanlon, Tax Expenditure o the Week: Step-Up inBasis, Center or American Progress, February 16, 2011,available at http://www.americanprogress.org/issues/open-government/news/2011/02/16/9020/tax-expenditure-o-the-week-step-up-in-basis/.

51 Center on Budget and Policy Priorities, Chart Book: 10Things You Need to Know About the Capital Gains Tax

(2012), available at http://www.cbpp.org/cms/index.cm?a=view&id=3798.

52 Internal Revenue Service, Tax Gap or Tax Year 2006 (Depart-ment o the Treasury,2012).

53 Joint Committee on Taxation, Estimated Budget Efects othe Revenue Provisions Contained in the Presidents Fiscal Year2013 Budget Proposal.