Major Sources Of Increased Income Tax Revenue Opportunities

From the March 2011, CBO report "Reducing the Deficit: Spending and Revenue Options," Figure 4-3, Page 133, the major sources of unused opportunities for increasing income tax revenue (projected $ totals for 2010-2014) are:

1. $675 billion from the elimination of the Exclusion of Employers' Contributions for Health Care, Health Insurance Programs, and Long-Term Care Insurance Premiums:
2. $600 billion from the elimination of the Net Exclusion of Pension Contributions and Earnings:
3. $500 billion from the elimination of the Deduction of Mortgage Interest on Owner-Occupied Residences:
4. $400 billion from the elimination of the Reduced Rate of Taxation on Long-Term Capital Gains and Dividends:
5. $275 billion from the elimination of the Earned Income Tax Credit:
6. $225 billion from the elimination of the Deduction of Nonbusiness State and Local Government Income Taxes, Sales Taxes, and Personal Property Taxes.

The total deficit over the same period is projected to be over $5 trillion. The major sources of tax revenue mentioned above reduce the deficit about half, but will have a greater impact going forward as the deficit is expected to shrink.

Of all the items above, elimination of the earned income tax credit is the only revenue opportunity I would not include. The earned income tax is a fair and efficient income program for the poor. It is basically a negative income tax and I am in favor of switching most government entitlement and subsidy programs to a negative tax. Negative taxes are easy to administer and cause fewer investment and consumer demand distortions.

There are few if any other options that would produce as much tax revenue for the US. Plus, elimination of most of these 'income tax expenditures' would reduce investment, consumption and incentive distortions that exist in the US economy. Increases to the personal income tax rate or the corporate tax rate are unlikely to produce an equivalent amount of new tax revenue.