TY - JOUR AU - Feldstein,Martin AU - Feenberg,Daniel AU - MacGuineas,Maya TI - Capping Individual Tax Expenditure Benefits JF - National Bureau of Economic Research Working Paper Series VL - No. 16921 PY - 2011 Y2 - April 2011 UR - http://www.nber.org/papers/w16921 L1 - http://www.nber.org/papers/w16921.pdf N1 - Author contact info: Martin S. Feldstein President Emeritus NBER 1050 Massachusetts Avenue Cambridge, MA 02138-5398 Tel: 617/868-3905 Fax: 617/868-7194 E-Mail: msfeldst@nber.org Daniel R. Feenberg National Bureau of Economic Research 1050 Massachusetts Avenue Cambridge, MA 02138 Tel: 617/588-0343 Fax: 617/868-2742 E-Mail: feenberg@nber.org Maya MacGuineas New America Foundation Fax: Director, Fiscal Policy Program E-Mail: macguineas@newamerica.net AB - This paper analyzes a new way of reducing the major individual tax expenditures: capping the total amount that tax expenditures as a whole can reduce each individual's tax burden. More specifically, we examine the effect of limiting the total value of the tax reduction resulting from tax expenditures to two percent of the individual's adjusted gross income. Each individual can benefit from the full range of tax expenditures but can receive tax reduction only up to 2 percent of his AGI. Simulations using the NBER TAXSIM model project that a 2 percent cap would raise $278 billion in 2011. The paper analyzes the revenue increases by AGI class. The 2 percent cap would also cause substantial simplification by inducing more than 35 million taxpayers to shift from itemizing their deductions to using the standard deduction. For any taxpayer for whom the 2 percent cap is binding, a cap would reduce the volume of wasteful spending and the associated deadweight loss. Even for those taxpayers for whom the cap is not binding but who are induced by the cap to shift from itemizing to using the standard deduction, the deadweight loss associated with deductible expenditures would be completely eliminated ER -