I have attached a new paper on limiting tax expenditures. As you probably
know, the idea of limiting tax expenditures as a way to reduce budget
deficits and tax rates was emphasized in the Bowles-Simpson Fiscal
Commission report and in the recent House Budget proposal.
The idea in this paper is to let every taxpayer continue to use all of the
existing tax expenditures but to limit the total tax benefit that each
taxpayer can get to a maximum of 2 percent of that taxpayer's AGI.
If the 2 percent cap were in effect in 2011, it would raise more than $275
billion. The cap would be binding for 86 percent of all taxpayers.
For those at the cap, there would be no incentive to increase mortgage
interest, health insurance, etc.. It would also induce nearly 3 out of 4
itemizers to shift to the standard deduction, a major simplification.
I would welcome any comments, questions or suggestions
This paper will appear as an NBER working paper and will be published in Tax
Notes on May 2nd
Marty Feldstein
Received on Thu Apr 07 2011 - 10:01:10 EDT
