Are Tax Expenditures Reaching Their Goals? A View from the Fiscal Cliff

Taxes help pay for things that make our society better, like roads and schools. The government gives tax breaks to encourage people to spend money. But sometimes these tax breaks don’t work as planned and end up costing the government money. Tax breaks for things like buying a house or going to college are examples of this. They’re meant to help people, but they don’t always do what they’re supposed to. Tax expenditures, also known as “backdoor spending,” are like giveaways in the tax code that benefit different activities and people. They make up a big chunk of the government’s support for the public, but unlike regular spending, they don’t need to be approved by Congress each year. In 2012, these tax expenditures are expected to cost the government $1.1 trillion in lost revenue. This is about 6.7 percent of the money the country makes in a year. Most of these tax breaks go toward social services like housing and education. However, these tax breaks don’t treat everyone fairly and make the tax system more complicated. They also mostly help higher-income people, making the gap between rich and poor even wider. The government gives homeowners tax breaks like deductions for mortgage interest and real estate taxes, and a break on the taxes they pay when they sell their home. These tax breaks are meant to encourage people to buy homes, which can be a good way to save money and build wealth. But these tax breaks are complicated and expensive, and they mostly help low- and middle-income people. This makes the tax system unfair and hard to understand. In 2004, the number of people who owned homes was at its highest ever, at 69 percent. Some people think that tax breaks helped more people buy homes, but really they mainly just make rich people even richer and don’t help lower-income people much. For example, the government might give a low-income family $4,800 to help them with rent, but a rich family with a $500,000 home could get $9,900 in tax breaks. Middle-income families often can’t get help paying rent or buying a home, and even if they do, they might not have enough tax deductions to make a difference. Most of the help from the government goes to low-income families, while most of the tax breaks go to the rich. Real estate tax breaks and education tax breaks aren’t helping low-income families. The real estate tax breaks mainly benefit rich people and the education tax breaks mainly benefit high-income families. So, to help low and middle-income families, the government should give a tax credit for mortgage and property taxes that everyone can use, and make the education tax breaks simpler and more helpful for everyone, not just rich people. The government uses tax breaks to encourage people to do certain things, like buy a home or go to college. But these tax breaks don’t always work as intended. They mostly benefit rich people and don’t help low-income families much. One idea to make them work better is to give the benefits as refunds, so that more low-income families can get help. The government needs to make sure that these tax breaks actually help people and are worth the money they cost. This is a list of different sources and quotes about tax expenditures, which are like government spending through the tax system. They include things like deductions for homeownership and education. This can be complicated, but it’s important to understand because it affects how much money the government has for other things. In short, Richard Q. Lewis III is a lawyer who specializes in tax law and helping people with estate planning and business matters. He wrote a column for the Tax Law Section, which is part of The Florida Bar, about tax incentives for education. He explains the different tax programs available to help families save for college. His column was published in a legal journal.

Source: https://www.floridabar.org/the-florida-bar-journal/are-tax-expenditures-reaching-their-goals-a-view-from-the-fiscal-cliff/