Joint Tax Committee Analyzes Revenue and Rate Impact of Repealing Large Tax Expenditures

The Congressional Joint Committee on Taxation (JCT) last week released the results of an experiment it conducted on the concept of repealing tax expenditures and using all or part of the revenues to reduce marginal tax rates. Senate Finance Committee Chairman Max Baucus (D-MT) asked JCT to look into the concept at a September 19 Finance Committee meeting on the alternative minimum tax (AMT) and provisions of the Internal Revenue Code that have either expired over the past year or are about to expire.

The experiment, which JCT Chief of Staff Thomas Barthold referred to as “a preliminary first step” towards fully studying the concept, did not repeal all tax expenditures but only a few of the largest on the individual side of the Code, including all itemized deductions, special treatment of capital gains and dividends, and the interest exclusion on newly issued State and local bonds.

While some of the revenue raised through the experiment was used to repeal the AMT and limitations on itemized deductions and personal exemptions for high-income households, the remaining revenue was used to reduce ordinary income tax rates by 4 percent. Other large tax expenditures such as the earned income tax credit, the child credit, and the exclusion for employer-sponsored health insurance, were not part of the experiment.

The JCT is a nonpartisan committee of the United States Congress that assists members of the majority and minority parties on tax legislation and is involved at every stage of the tax legislative process.