1. Reforming Taxes as Part of Budget Reform Testimony before the National Commission on Fiscal Responsibility and Reform June 23, 2010 C. Eugene Steuerle Institute Fellow & Richard B. Fisher Chair The Urban Institute

5. Taxes & Spending per Household ($2010) Source: S. Rennane and C. E. Steuerle, the Urban Institute, 2010. CBO Alternative Baseline, with author adjustments for health reform. 5 2011 2020 Taxes per household $ 20,000 $ 26,000 Total Spending per household $ 30,000 $ 35,000 Tax Expenditures per household $ 9,600 $ 12,400 Interest Spending per Household $ 2,000 $ 7,000

7. Steuerle-Roeper Index of Fiscal Democracy: -- % of Revenues Not Yet Committed to Permanent (Mandatory) Programs-- Source: S. Rennane, T. Roeper and C. E. Steuerle, 2010. Data from OMB and CBO, with author adjustments for health reform. Excludes TARP. 7

12. Income & Corporate Tax Expenditures: Comparison to Income Tax and Total Revenues (2010, $ billions) *Percentages especially high in 2010 due to recession Source: Urban-Brookings Tax Policy Center, 2010. 12 Total Income Tax Expenditures 1,099 Total Income Tax 1,093 Total Revenues 2,126 Income Tax Expenditures as % of Total Income Tax 101%* Income Tax Expenditures as % of Total Revenues 52%*

13. Tax Expenditures: Largest in 2009 (Billions, $2009) Source: OMB Analytical Perspectives. Income Tax Expenditures only. 13 Employer contributions to health insurance* 144 Exclusion for pensions & retirement plans (income tax only) 85 Deductibility of mortgage interest 79 Accelerated depreciation-machinery & equipment 57 Capital gains 53 Earned income tax credit 49 Deductibility of non-business state and local taxes 45 Child credit 45 Step-up basis of capital gains at death 41 *Income tax only. At least $60 billion more in Social Security tax expenditures (own estimates).

14. Tax Expenditures: Some Comparisons to Spending by Function, 2009 ($, billions) Source: Center for a Responsible Federal Budget. Tax Expenditure calculations do not include interaction effects. 14 Outlays Tax Expenditures* Total National defense 661 12 673 International affairs 38 46 83 General science, space and technology 29 12 41 Energy 5 5 10 Natural resources and environment 36 2 37 Agriculture 22 1 23 Commerce and housing 292 385 677 Transportation 84 4 88 Community and regional development 28 3 31 Educ., training, emp., and social services 80 109 188 Health 334 168 502 Medicare 430 430 Income security 533 130 664 Social Security 678 31 709 Veterans benefits and services 95 4 100 Other 168 175 343 Total 3,513 1,087 4,600

15. Distribution of Major Tax Expenditures Source: Burman, L., E. Toder and C. Geissler, 2008. Urban-Brookings Tax Policy Center. 15 Percent Reduction in After-Tax Income: Eliminating Major Individual Income Tax Expenditures, by Income Quintile Bottom Quintile 2 nd Quintile Middle Quintile 4 th Quintile Top Quintile Without interactions 5.6% 8.0% 6.8% 6.5% 10.7% With interactions 6.5% 8.2% 6.8% 6.8% 11.4%

18. Sources of Tax Gap, 2001 ($ billions) Source: Toder, E. 2007. “What is the Tax Gap?” Tax Analysts. 18 Tax Sources Non-filing Under-reporting Under-payment Total Individual Income Tax 25 197 23.4 245 Non-business income 56 Business income 109 Adjustments, deductions, exemptions 15 Credits 17 Corporation Income Tax 30 2.3 32 Employment Tax (e.g., Social Security) 54 5 59 Estate Tax 2 4 2.1 8 Excise Tax 0.5 0.5 All Taxes 27 285 33.3 345 Memo: Taxes paid by individuals 27 240 25.5 293 Memo2: Taxes on business income of individuals 148 Source: Internal Revenue Service, "Tax Gap for Tax Year 2001", in Mark J. Mazur and Alan H. Plumley (2007)