This conference is supported by Lynde and Harry Bradley Foundation
Limiting Tax Expenditures after the American Taxpayer Relief Act
This memo updates my earlier analyses of alternative ways of limiting tax expenditures by incorporating the increased tax rates and other provisions of the American Taxpayer Relief Act that Congress passed at end of 2012. The memo discusses three different approaches to limiting tax expenditures.
The first section describes the advantages of an overall cap on the tax reduction that an individual can obtain from deductions and exclusions.
The second section discusses a cap on the dollar value of deductions (or deductions and selected exclusions.)
Section three considers the effect of limiting the marginal tax rate applied to deductions and certain exclusions.
All estimates refer to 2013 and make no allowance for the effect of the cap on behavior of taxpayers. These "static" estimates therefore overstate the revenue effects that would occur if implemented. Total revenue over a 10 year period would probably be 12 to 15 times larger than the revenue increase in 2013, depending on growth rates and other factors. All estimates should therefore be regarded as only approximate values.
The personal tax expenditures analyzed in this memo include all personal deductions (generally other than charitable contributions) and the exclusion of municipal bond interest and employer payments for health insurance above $8000 per taxpayer. Several variations on this are presented. Under current law, all employees will receive information about the value of their employer health insurance benefits on their W-2 forms.
In addition to the conference paper, the research was distributed as NBER Working Paper w19936, which may be a more recent version.