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Distributional Effects of Tax Expenditures

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Publication Date: July 2009

Publisher(s): Tax Policy Center

Author(s): Benjamin H. Harris; Katherine Lim; Eric Toder

Special Collection: John D. and Catherine T. MacArthur Foundation

Topic: Banking and finance (Taxation and tax policy)

Keywords: Tax Distribution and Economic Trends; Taxes and Social Programs; Taxes and Social Policy; Distribution of Taxes and Income

Type: Paper

Abstract:

The largest tax preferences for housing, health care, and retirement saving reduce federal revenues by about 3 percent of GDP. They raise after-tax income proportionally more for higher income groups than lower income groups, but raise income proportionately less for those at the very top. The net distributional effects depend on how these tax preferences are financed. If paid for with higher marginal tax rates, they benefit upper-middle income taxpayers at the expense of both lower-income and the highest-income taxpayers, but if paid for by lower per-capita spending, all high-income groups gain and all low-income groups lose.