Options to Limit the Benefit of Tax Expenditures for High-Income Households

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Options to Limit the Benefit of Tax Expenditures for High-Income Households

Daniel Baneman, Jim Nunns, Jeff Rohaly, Eric Toder, Roberton Williams

Published: August 02, 2011

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Abstract

This analysis measures the revenue and distributional impacts of three proposals to limit tax expenditures for higher-income households: the Obama Administration's plan to cap the value of itemized deductions at 28 percent; an effective minimum tax (EMT) to ensure that tax liability is at least a certain percentage of a taxpayer's income; and a modified version of a recent proposal to limit the value of specific tax expenditures to two percent of adjusted gross income (AGI).

The text below is an excerpt from the complete document. Read the entire report in PDF format.

This analysis considers three proposals that would limit tax expenditures for higher-income households: the Obama Administration's proposal to cap the value of itemized deductions at 28 percent; a minimum tax to ensure that tax liability is at least a certain percentage of a taxpayer's income; and a modified version of the Feldstein/Feenberg/MacGuineas (FFM) proposal to limit the value of specific tax expenditures to 2 percent of adjusted gross income (AGI).

To measure the revenue and distributional implications of these proposals, the analysis considers two baselines: current law and current policy. "Current law" is the standard baseline that official revenue estimators at the Joint Committee on Taxation use to score tax proposals. It assumes that tax law plays out as it is currently written. Most important, that means that the 2001-2010 income and estate tax cuts expire at the end of 2012 and that temporary relief from the alternative minimum tax (AMT) expires at the end of 2011. The "current policy" baseline assumes that Congress permanently extends all provisions in the 2011 tax code (except the 2 percent reduction in Social Security payroll tax) as well as AMT relief, indexed for inflation after 2011.

End of excerpt. The entire report with graphs and footnotes is available in PDF format.