[Analytical Perspectives]
[Federal Receipts and Collections]
[5. Tax Expenditures]
[From the U.S. Government Printing Office, www.gpo.gov]


   Tax expenditures are revenue losses due to preferential provisions of 
the Federal tax laws, such as special exclusions, exemptions, 
deductions, credits, deferrals, or tax rates. Tax expenditures are an 
alternative to other Government policy instruments, such as direct 
expenditures and regulations. The Congressional Budget Act of 1974 
(Public Law 93-344) requires that a list of tax expenditures be included 
in the budget.
  Tax expenditures relating to the individual and corporate income taxes 
are considered first in this chapter, followed by those relating to the 
unified transfer tax. The supplement at the end of the chapter presents 
major tax expenditures in the income tax ranked by revenue loss.
  Tax expenditures are estimated for fiscal years 1995-2001 using three 
methods of accounting: revenue loss, outlay equivalent, and present 
value. The present value approach provides estimates of the revenue 
losses for tax expenditures that involve deferrals of tax payments into 
the future or have similar long-term effects.
                   TAX EXPENDITURES IN THE INCOME TAX
                        Tax Expenditure Estimates
  The Treasury Department prepared all tax expenditure estimates 
presented here based upon income tax law enacted as of December 31, 
1995. Expired or repealed provisions are not listed if their revenue 
effects result only from taxpayer activity occurring before fiscal year 
1995.
  The total revenue loss estimates for tax expenditures for fiscal years 
1995-2001 are displayed by the budget's functional categories in table 
5-1. Descriptions of the specific tax expenditure provisions follow the 
tables of estimates and discussion of general features of the tax 
expenditure concept.
  As in prior years, two baseline concepts--the normal tax baseline and 
the reference tax law baseline--are used to identify tax expenditures. 
For the most part, the two concepts coincide. However, items treated as 
tax expenditures under the normal tax baseline, but not the reference 
tax law baseline, are indicated by the designation ``normal tax method'' 
in the tables. The revenue losses for these items are zero using the 
reference tax rules. The alternative baseline concepts are discussed in 
detail following the estimates.
  Table 5-2 reports the respective portions of the total revenue losses 
that arise under the individual and corporate income taxes. Listing 
revenue loss estimates under the individual and corporate headings does 
not imply that these categories of filers benefit from the special tax 
provisions in proportion to the respective tax expenditure amounts 
shown. Rather, these breakdowns show the specific tax accounts through 
which the various provisions are cleared. The ultimate beneficiaries of 
corporate tax expenditures, for example, could be stockholders, 
employees, customers, or others, depending on the circumstances.
  Table 5-6 at the end of this chapter ranks the major tax expenditures 
by fiscal year 1997 revenue loss. This table merges several individual 
entries provided in table 5-1; for example, table 5-6 contains one 
merged entry for charitable contributions instead of the three separate 
entries found in table 5-1.
[[Page 62]]
                 TABLE 5-1.  TOTAL REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES IN THE INCOME TAX                
                                            (In millions of dollars)                                            
----------------------------------------------------------------------------------------------------------------
                                                                   Total Revenue Loss                           
                Provision              -------------------------------------------------------------------------
                                          1995     1996     1997     1998     1999     2000     2001   1997-2001
----------------------------------------------------------------------------------------------------------------
National defense:                                                                                               
  Exclusion of benefits and allowances                                                                          
   to armed forces personnel..........    2,000    2,060    2,080    2,095    2,120    2,140    2,160    10,595 
                                                                                                                
International affairs:                                                                                          
  Exclusion of income earned abroad by                                                                          
   United States citizens.............    1,670    1,870    2,100    2,355    2,645    2,965    3,330    13,395 
  Exclusion of income of foreign sales                                                                          
   corporations.......................    1,400    1,500    1,600    1,700    1,800    1,900    2,000     9,000 
  Inventory property sales source                                                                               
   rules exception....................    1,300    1,400    1,500    1,600    1,700    1,800    1,900     8,500 
  Interest allocation rules exception                                                                           
   for certain financial operations...       95       95       95       95       95       95       95       475 
  Deferral of income from controlled                                                                            
   foreign corporations (normal tax                                                                             
   method)............................    1,700    1,800    2,000    2,200    2,400    2,600    2,900    12,100 
                                                                                                                
General science, space, and                                                                                     
 technology:                                                                                                    
  Expensing of research and                                                                                     
   experimentation expenditures                                                                                 
   (normal tax method)................    1,635    1,740    1,840    1,945    2,065    2,190    2,320    10,360 
  Credit for increasing research                                                                                
   activities.........................    1,185      675      285      120       40        5  .......       450 
  Suspension of the allocation of                                                                               
   research and experimentation                                                                                 
   expenditures.......................      325  .......  .......  .......  .......  .......  .......  .........
                                                                                                                
Energy:                                                                                                         
  Expensing of exploration and                                                                                  
   development costs:                                                                                           
    Oil and gas.......................     -300     -255     -165      -75        0       95       80       -65 
    Other fuels.......................       15       15       15       15       15       15       20        80 
  Excess of percentage over cost                                                                                
   depletion:                                                                                                   
    Oil and gas.......................      945      985    1,020    1,060    1,105    1,145    1,195     5,525 
    Other fuels.......................      120      120      125      140      140      155      155       715 
  Alternative fuel production credit..      970    1,000      990      940      880      820      760     4,390 
  Exception from passive loss                                                                                   
   limitation for working interests in                                                                          
   oil and gas properties.............       55       60       60       65       65       70       75       335 
  Capital gains treatment of royalties                                                                          
   on coal............................       15       15       15       15       15       15       15        75 
  Exclusion of interest on State and                                                                            
   local IDBs for energy facilities...      175      180      180      175      175      165      160       855 
  New technology credit...............      140      140      145      155      165      175      185       825 
  Alcohol fuel credit\1\..............       10       10       10       10       10       10       10        50 
  Tax credit and deduction for clean-                                                                           
   fuel burning vehicles and                                                                                    
   properties.........................       65       65       65       75       80       85       90       395 
  Exclusion from income of                                                                                      
   conservation subsidies provided by                                                                           
   public utilities...................      130      155      165      165      155      155      145       785 
                                                                                                                
Natural resources and environment:                                                                              
  Expensing of exploration and                                                                                  
   development costs, nonfuel minerals       35       35       35       35       35       35       35       175 
  Excess of percentage over cost                                                                                
   depletion, nonfuel minerals........      220      225      235      240      245      245      255     1,220 
  Capital gains treatment of iron ore.        0        0        0        0        0        0        0         0 
  Special rules for mining reclamation                                                                          
   reserves...........................       50       50       50       50       50       50       50       250 
  Exclusion of interest on State and                                                                            
   local IDBs for pollution control                                                                             
   and sewage and waste disposal                                                                                
   facilities.........................      635      630      615      605      600      575      555     2,950 
  Capital gains treatment of certain                                                                            
   timber income......................       15       15       15       15       15       15       15        75 
  Expensing of multiperiod timber                                                                               
   growing costs......................      370      395      415      440      460      485      505     2,305 
  Investment credit and seven-year                                                                              
   amortization for reforestation                                                                               
   expenditures.......................       45       45       50       50       50       50       50       250 
  Tax incentives for preservation of                                                                            
   historic structures................      125      125      120      115      115      110      105       565 
                                                                                                                
Agriculture:                                                                                                    
  Expensing of certain capital outlays       70       65       65       65       70       70       70       340 
  Expensing of certain multiperiod                                                                              
   production costs...................       85       80       80       80       85       85       85       415 
  Treatment of loans forgiven solvent                                                                           
   farmers as if insolvent............       10       10       10       10       10       10       10        50 
  Capital gains treatment of certain                                                                            
   income.............................      145      145      140      145      145      150      155       735 
                                                                                                                
Commerce and housing:                                                                                           
  Financial institutions and                                                                                    
   insurance:                                                                                                   
    Exemption of credit union income..      630      650      710      780      860      940    1,030     4,320 
    Excess bad debt reserves of                                                                                 
     financial institutions...........       95      105      115      125      135      150      160       685 
    Exclusion of interest on life                                                                               
     insurance savings................    9,905   10,670   11,470   12,340   13,260   14,255   14,950    66,275 
    Special alternative tax on small                                                                            
     property and casualty insurance                                                                            
     companies........................        5        5        5        5        5        5        5        25 
    Tax exemption of certain insurance                                                                          
     companies........................      235      240      245      255      260      280      300     1,340 
    Small life insurance company                                                                                
     deduction........................      110      115      120      130      135      140      145       670 
  Housing:                                                                                                      
    Exclusion of interest on owner-                                                                             
     occupied mortgage subsidy bonds..    1,810    1,810    1,770    1,710    1,655    1,605    1,540     8,280 
    Exclusion of interest on State and                                                                          
     local debt for rental housing....      925      875      815      760      700      630      545     3,450 
    Deductibility of mortgage interest                                                                          
     on owner-occupied homes..........   48,080   50,575   53,075   55,750   58,590   61,655   64,915   293,985 
    Deductibility of State and local                                                                            
     property tax on owner-occupied                                                                             
     homes............................   15,275   16,070   16,860   17,710   18,615   19,590   20,620    93,395 
    Deferral of income from post 1987                                                                           
     installment sales................      935      955      975      995    1,015    1,035    1,055     5,075 
    Deferral of capital gains on home                                                                           
     sales............................   14,180   14,605   15,040   15,490   15,955   16,435   16,930    79,850 
    Exclusion of capital gains on home                                                                          
     sales for persons age 55 and over    5,160    5,185    5,075    5,465    5,280    5,755    5,480    27,055 
    Exception from passive loss rules                                                                           
     for $25,000 of rental loss.......    4,515    4,235    3,985    3,745    3,520    3,305    3,070    17,625 
    Accelerated depreciation on rental                                                                          
     housing (normal tax method)......    1,045    1,170    1,305    1,485    1,675    2,165    2,455     9,085 
  Commerce:                                                                                                     
    Cancellation of indebtedness......      105       70       40       15        0      -10       -5        40 
    Permanent exceptions from imputed                                                                           
     interest rules...................      150      150      155      155      160      160      160       790 
    Capital gains (other than                                                                                   
     agriculture, timber, iron ore,                                                                             
     and coal) (normal tax method)....    7,125    7,000    6,920    7,035    7,195    7,385    7,560    36,095 
    Capital gains exclusion of small                                                                            
     corporation stock................        0        0        0        5       30       70      110       215 
[[Page 63]]
    Step-up basis of capital gains at                                                                           
     death............................   28,305   29,480   30,265   30,710   31,160   31,615   32,075   155,825 
    Carryover basis of capital gains                                                                            
     on gifts.........................      130      140      150      160      170      180      190       850 
    Ordinary income treatment of loss                                                                           
     from small business corporation                                                                            
     stock sale.......................      105      215      305      370      380      355      305     1,715 
    Accelerated depreciation of                                                                                 
     buildings other than rental                                                                                
     housing (normal tax method)......    7,440    6,735    5,720    4,590    3,410    2,420    1,600    17,740 
    Accelerated depreciation of                                                                                 
     machinery and equipment (normal                                                                            
     tax method)......................   24,460   27,160   29,500   31,210   33,030   33,575   32,240   159,555 
    Expensing of certain small                                                                                  
     investments (normal tax method)..    1,815    1,520    1,120      795      600      320      155     2,990 
    Amortization of start-up costs                                                                              
     (normal tax method)..............      185      195      200      205      210      210      220     1,045 
    Graduated corporation income tax                                                                            
     rate (normal tax method).........    4,105    4,435    4,730    5,015    5,345    5,710    6,085    26,885 
    Exclusion of interest on small                                                                              
     issue IDBs.......................      555      435      345      295      280      265      260     1,445 
    Deferral of gains from sale of                                                                              
     broadcasting facilities to                                                                                 
     minority owned business..........      285  .......  .......  .......  .......  .......  .......  .........
    Treatment of Alaska Native                                                                                  
     Corporations.....................       30       20       15       10        5        5        5        40 
                                                                                                                
Transportation:                                                                                                 
  Deferral of tax on shipping                                                                                   
   companies..........................       20       20       20       20       20       20       20       100 
  Exclusion of reimbursed employee                                                                              
   parking expenses...................    1,215    1,255    1,290    1,330    1,370    1,410    1,455     6,855 
  Exclusion for employer-provided                                                                               
   transit passes.....................       35       50       60       70       85      100      120       435 
                                                                                                                
Community and regional development:                                                                             
  Credit for low-income housing                                                                                 
   investments........................    2,260    2,600    2,945    3,270    3,500    3,595    3,445    16,755 
  Investment credit for rehabilitation                                                                          
   of structures (other than historic)       80       80       80       70       70       70       65       355 
  Exclusion of interest on IDBs for                                                                             
   airports, docks, and sports and                                                                              
   convention facilities..............      855      910      965    1,025    1,090    1,145    1,205     5,430 
  Exemption of certain mutuals' and                                                                             
   cooperatives' income...............       50       50       50       55       55       60       60       280 
  Empowerment zones...................      250      330      385      425      450      475      490     2,225 
                                                                                                                
Education, training, employment, and                                                                            
 social services:                                                                                               
  Education:                                                                                                    
    Exclusion of scholarship and                                                                                
     fellowship income (normal tax                                                                              
     method)..........................      825      835      845      850      860      870      875     4,300 
    Exclusion of interest on State and                                                                          
     local student loan bonds.........      315      305      290      275      260      250      240     1,315 
    Exclusion of interest on State and                                                                          
     local debt for private nonprofit                                                                           
     educational facilities...........      770      795      830      870      910      955      990     4,555 
    Exclusion of interest on savings                                                                            
     bonds transferred to educational                                                                           
     institutions.....................        5        5       10       10       15       15       15        65 
    Parental personal exemption for                                                                             
     students age 19 or over..........      820      825      835      870      905      955    1,015     4,580 
    Deductibility of charitable                                                                                 
     contributions (education)........    1,780    1,870    1,965    2,065    2,165    2,275    2,385    10,855 
    Exclusion of employer provided                                                                              
     educational assistance...........      100  .......  .......  .......  .......  .......  .......  .........
  Training, employment, and social                                                                              
   services:                                                                                                    
    Targeted jobs credit..............      395      325       60       40       20        5  .......       125 
    Exclusion of employer provided                                                                              
     child care.......................      725      775      830      890      955    1,025    1,100     4,800 
    Exclusion of employee meals and                                                                             
     lodging (other than military)....      545      570      600      630      665      700      735     3,330 
    Credit for child and dependent                                                                              
     care expenses....................    2,730    2,865    3,005    3,155    3,315    3,480    3,655    16,610 
    Credit for disabled access                                                                                  
     expenditures.....................      160      160      165      165      165      170      170       835 
    Expensing of costs of removing                                                                              
     certain architectural barriers to                                                                          
     the handicapped..................       20       20       20       20       20       20       20       100 
    Deductibility of charitable                                                                                 
     contributions, other than                                                                                  
     education and health.............   19,565   20,565   21,600   22,675   23,815   25,000   26,240   119,330 
    Exclusion of certain foster care                                                                            
     payments.........................       30       30       35       35       35       40       40       185 
    Exclusion of parsonage allowances.      265      285      300      320      345      365      390     1,720 
                                                                                                                
Health:                                                                                                         
  Exclusion of employer contributions                                                                           
   for medical insurance premiums and                                                                           
   medical care.......................   59,440   64,520   70,490   77,040   84,125   91,620   99,925   423,200 
  Deductibility of medical expenses...    3,495    3,785    4,125    4,510    4,930    5,395    5,895    24,855 
  Exclusion of interest on State and                                                                            
   local debt for private nonprofit                                                                             
   health facilities..................    1,535    1,595    1,675    1,750    1,845    1,935    2,015     9,220 
  Deductibility of charitable                                                                                   
   contributions (health).............    2,280    2,395    2,510    2,630    2,755    2,885    3,020    13,800 
  Tax credit for orphan drug research.       15  .......  .......  .......  .......  .......  .......  .........
  Special Blue Cross/Blue Shield                                                                                
   deduction..........................      125      140      100      170      185      220      280       955 
                                                                                                                
Income security:                                                                                                
  Exclusion of railroad retirement                                                                              
   system benefits....................      430      445      450      455      460      465      470     2,300 
  Exclusion of workmen's compensation                                                                           
   benefits...........................    4,475    4,855    5,050    5,255    5,515    5,800    6,205    27,825 
  Exclusion of public assistance                                                                                
   benefits (normal tax method).......      570      590      635      695      740      795      850     3,715 
  Exclusion of special benefits for                                                                             
   disabled coal miners...............       95       90       85       85       80       75       70       395 
  Exclusion of military disability                                                                              
   pensions...........................      130      130      130      130      130      130      130       650 
  Net exclusion of pension                                                                                      
   contributions and earnings:                                                                                  
    Employer plans....................   52,070   55,370   55,770   56,205   56,625   57,045   57,470   283,115 
    Individual Retirement Accounts....    7,720    7,830    7,940    8,335    8,420    8,455    8,490    41,640 
    Keogh plans.......................    3,315    3,345    3,580    3,780    3,935    4,090    4,240    19,625 
  Exclusion of employer provided death                                                                          
   benefits...........................       30       35       35       35       40       40       45       195 
  Exclusion of other employee                                                                                   
   benefits:                                                                                                    
    Premiums on group term life                                                                                 
     insurance........................    2,880    3,020    3,170    3,325    3,485    3,660    3,865    17,505 
    Premiums on accident and                                                                                    
     disability insurance.............      150      155      165      175      185      195      205       925 
    Income of trusts to finance                                                                                 
     supplementary unemployment                                                                                 
     benefits.........................       20       20       20       20       20       20       20       100 
  Special ESOP rules (other than                                                                                
   investment credit).................    2,125    1,745    1,540    1,405    1,280    1,170    1,065     6,460 
  Additional deduction for the blind..       25       25       25       25       25       30       30       135 
  Additional deduction for the elderly    1,305    1,320    1,340    1,355    1,365    1,375    1,385     6,820 
[[Page 64]]
  Tax credit for the elderly and                                                                                
   disabled...........................       50       55       55       60       60       65       65       305 
  Deductibility of casualty losses....      800      445      465      490      515      540      570     2,580 
  Earned income credit\2\.............    4,920    5,670    6,250    6,460    6,820    7,105    7,510    34,145 
                                                                                                                
Social Security:                                                                                                
  Exclusion of social security                                                                                  
   benefits:                                                                                                    
    OASI benefits for retired workers.   16,015   16,465   17,285   18,080   18,880   19,525   20,515    94,285 
    Disability insurance benefits.....    1,975    2,180    2,375    2,580    2,800    3,030    3,265    14,050 
    Benefits for dependents and                                                                                 
     survivors........................    3,630    3,820    4,030    4,245    4,470    4,695    4,935    22,375 
                                                                                                                
Veterans benefits and services:                                                                                 
  Exclusion of veterans disability                                                                              
   compensation.......................    2,665    2,820    2,985    3,160    3,335    3,515    3,720    16,715 
  Exclusion of veterans pensions......       75       70       70       70       75       85       90       390 
  Exclusion of GI bill benefits.......       50       65       70       80       90       95      100       435 
  Exclusion of interest on State and                                                                            
   local debt for veterans housing....       85       80       80       80       85       85       90       420 
                                                                                                                
General purpose fiscal assistance:                                                                              
  Exclusion of interest on public                                                                               
   purpose State and local debt.......   12,700   13,175   13,775   14,455   15,195   15,905   16,535    75,865 
  Deductibility of nonbusiness State                                                                            
   and local taxes other than on owner-                                                                         
   occupied homes.....................   27,735   29,175   30,620   32,160   33,800   35,570   37,445   169,595 
  Tax credit for corporations                                                                                   
   receiving income from doing                                                                                  
   business in U.S. possessions.......    2,745    2,795    2,855    3,025    3,205    3,400    3,600    16,085 
                                                                                                                
Interest:                                                                                                       
  Deferral of interest on savings                                                                               
   bonds..............................    1,100    1,160    1,210    1,280    1,340    1,410    1,480     6,720 
                                                                                                                
Addendum--Aid to State and local                                                                                
 governments:                                                                                                   
  Deductibility of:                                                                                             
    Property taxes on owner-occupied                                                                            
     homes............................   15,275   16,070   16,860   17,710   18,615   19,590   20,620    93,395 
    Nonbusiness State and local taxes                                                                           
     other than on owner-occupied                                                                               
     homes............................   27,735   29,175   30,620   32,160   33,800   35,570   37,445   169,595 
  Exclusion of interest on:                                                                                     
    Public purpose State and local                                                                              
     debt.............................   12,700   13,175   13,775   14,455   15,195   15,905   16,535    75,865 
    IDBs for certain energy facilities      175      180      180      175      175      165      160       855 
    IDBs for pollution control and                                                                              
     sewage and waste disposal                                                                                  
     facilities.......................      635      630      615      605      600      575      555     2,950 
    Small-issue IDBs..................      555      435      345      295      280      265      260     1,445 
    Owner-occupied mortgage revenue                                                                             
     bonds............................    1,810    1,810    1,770    1,710    1,655    1,605    1,540     8,280 
    State and local debt for rental                                                                             
     housing..........................      925      875      815      760      700      630      545     3,450 
    IDBs for airports, docks, and                                                                               
     sports and convention facilities.      855      910      965    1,025    1,090    1,145    1,205     5,430 
    State and local student loan bonds      315      305      290      275      260      250      240     1,315 
    State and local debt for private                                                                            
     nonprofit educational facilities.      770      795      830      870      910      955      990     4,555 
    State and local debt for private                                                                            
     nonprofit health facilities......    1,535    1,595    1,675    1,750    1,845    1,935    2,015     9,220 
    State and local debt for veterans                                                                           
     housing..........................       85       80       80       80       85       85       90       420 
----------------------------------------------------------------------------------------------------------------
\1\In addition, the partial exemption from the excise tax for alcohol fuels results in a reduction in excise tax
  receipts (in millions of dollars) as follows: 1995: $615; 1996: $645; 1997: $665; 1998: $685; 1999: $705;     
  2000: $730; and 2001: $750.                                                                                   
\2\The figures in the table indicate the effect of the earned income tax credit on receipts. The effect on      
  outlays (in millions of dollars) is as follows: 1995: $15,245; 1996: $18,655; 1997: $20,450; 1998: $21,255;   
  1999: $22,175; 2000: $23,210; and 2001: $24,115.                                                              
Note: Provisions with estimates denoted ``normal tax method'' have no revenue loss under the reference tax law  
  method.                                                                                                       
All estimates have been rounded to the nearest $5 million.                                                      
Figures in table 5-1 are the arithmetic sums of corporate and individual income tax revenue loss estimates from 
  table 5-2, and do not reflect possible interactions across these two taxes.                                   
[[Page 65]]

                                                  TABLE 5-2.   CORPORATE AND INDIVIDUAL INCOME TAX REVENUE LOSS ESTIMATES FOR TAX EXPENDITURES                                                  
                                                                                    (In millions of dollars)                                                                                    
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                                                                            Revenue Loss                                                        
                                                                   -----------------------------------------------------------------------------------------------------------------------------
                              Provision                                                      Corporations                                                   Individuals                         
                                                                   -----------------------------------------------------------------------------------------------------------------------------
                                                                      1995     1996     1997     1998     1999     2000     2001     1995     1996     1997     1998     1999     2000     2001 
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
National defense:                                                                                                                                                                               
  Exclusion of benefits and allowances to armed forces personnel..  .......  .......  .......  .......  .......  .......  .......    2,000    2,060    2,080    2,095    2,120    2,140    2,160
                                                                                                                                                                                                
International affairs:                                                                                                                                                                          
  Exclusion of income earned abroad by United States citizens.....  .......  .......  .......  .......  .......  .......  .......    1,670    1,870    2,100    2,355    2,645    2,965    3,330
  Exclusion of income of foreign sales corporations...............    1,400    1,500    1,600    1,700    1,800    1,900    2,000  .......  .......  .......  .......  .......  .......  .......
  Inventory property sales source rules exception.................    1,300    1,400    1,500    1,600    1,700    1,800    1,900  .......  .......  .......  .......  .......  .......  .......
  Interest allocation rules exception for certain financial                                                                                                                                     
   operations.....................................................       95       95       95       95       95       95       95  .......  .......  .......  .......  .......  .......  .......
  Deferral of income from controlled foreign corporations (normal                                                                                                                               
   tax method)....................................................    1,700    1,800    2,000    2,200    2,400    2,600    2,900  .......  .......  .......  .......  .......  .......  .......
                                                                                                                                                                                                
General science, space, and technology:                                                                                                                                                         
  Expensing of research and experimentation expenditures (normal                                                                                                                                
   tax method)....................................................    1,605    1,705    1,805    1,910    2,025    2,150    2,275       30       35       35       35       40       40       45
  Credit for increasing research activities.......................    1,155      665      285      120       40        5  .......       30       10  .......  .......  .......  .......  .......
  Suspension of the allocation of research and experimentation                                                                                                                                  
   expenditures...................................................      325  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
                                                                                                                                                                                                
Energy:                                                                                                                                                                                         
  Expensing of exploration and development costs:                                                                                                                                               
    Oil and gas...................................................     -225     -190     -125      -55        0       70       60      -75      -65      -40      -20        0       25       20
    Other fuels...................................................       10       10       10       10       10       10       15        5        5        5        5        5        5        5
  Excess of percentage over cost depletion:                                                                                                                                                     
    Oil and gas...................................................      710      740      765      795      830      860      895      235      245      255      265      275      285      300
    Other fuels...................................................       90       90       95      105      105      115      115       30       30       30       35       35       40       40
  Alternative fuel production credit..............................      820      850      840      800      750      700      650      150      150      150      140      130      120      110
  Exception from passive loss limitation for working interests in                                                                                                                               
   oil and gas properties.........................................  .......  .......  .......  .......  .......  .......  .......       55       60       60       65       65       70       75
  Capital gains treatment of royalties on coal....................  .......  .......  .......  .......  .......  .......  .......       15       15       15       15       15       15       15
  Exclusion of interest on State and local IDBs for energy                                                                                                                                      
   facilities.....................................................       70       70       70       70       70       65       65      105      110      110      105      105      100       95
  New technology credit...........................................      140      140      145      155      165      175      185        0        0        0        0        0        0        0
  Alcohol fuel credit\1\..........................................        5        5        5        5        5        5        5        5        5        5        5        5        5        5
  Tax credit and deduction for clean-fuel burning vehicles and                                                                                                                                  
   properties.....................................................       55       55       55       60       60       60       65       10       10       10       15       20       25       25
  Exclusion from income of conservation subsidies provided by                                                                                                                                   
   public utilities...............................................       80      100      105      100       90       85       75       50       55       60       65       65       70       70
                                                                                                                                                                                                
Natural resources and environment:                                                                                                                                                              
  Expensing of exploration and development costs, nonfuel minerals       25       25       25       25       25       25       25       10       10       10       10       10       10       10
  Excess of percentage over cost depletion, nonfuel minerals......      165      170      175      180      185      185      190       55       55       60       60       60       60       65
  Capital gains treatment of iron ore.............................  .......  .......  .......  .......  .......  .......  .......        0        0        0        0        0        0        0
  Special rules for mining reclamation reserves...................       45       45       45       45       45       45       45        5        5        5        5        5        5        5
  Exclusion of interest on State and local IDBs for pollution                                                                                                                                   
   control and sewage and waste disposal facilities...............      255      250      245      240      235      230      220      380      380      370      365      365      345      335
  Capital gains treatment of certain timber income................  .......  .......  .......  .......  .......  .......  .......       15       15       15       15       15       15       15
  Expensing of multiperiod timber growing costs...................      210      225      235      250      260      275      285      160      170      180      190      200      210      220
  Investment credit and seven-year amortization for reforestation                                                                                                                               
   expenditures...................................................       20       20       20       20       20       20       20       25       25       30       30       30       30       30
  Tax incentives for preservation of historic structures..........       25       25       25       25       25       20       20      100      100       95       90       90       90       85
                                                                                                                                                                                                
Agriculture:                                                                                                                                                                                    
  Expensing of certain capital outlays............................       10       10       10       10       10       10       10       60       55       55       55       60       60       60
  Expensing of certain multiperiod production costs...............       10       10       10       10       10       10       10       75       70       70       70       75       75       75
  Treatment of loans forgiven solvent farmers as if insolvent.....  .......  .......  .......  .......  .......  .......  .......       10       10       10       10       10       10       10
  Capital gains treatment of certain income.......................  .......  .......  .......  .......  .......  .......  .......      145      145      140      145      145      150      155
                                                                                                                                                                                                
Commerce and housing:                                                                                                                                                                           
  Financial institutions and insurance:                                                                                                                                                         
    Exemption of credit union income..............................      630      650      710      780      860      940    1,030  .......  .......  .......  .......  .......  .......  .......
    Excess bad debt reserves of financial institutions............       95      105      115      125      135      150      160  .......  .......  .......  .......  .......  .......  .......
    Exclusion of interest on life insurance savings...............      275      295      320      340      375      400      415    9,630   10,375   11,150   12,000   12,885   13,855   14,535
    Special alternative tax on small property and casualty                                                                                                                                      
     insurance companies..........................................        5        5        5        5        5        5        5  .......  .......  .......  .......  .......  .......  .......
    Tax exemption of certain insurance companies..................      235      240      245      255      260      280      300  .......  .......  .......  .......  .......  .......  .......
    Small life insurance company deduction........................      110      115      120      130      135      140      145  .......  .......  .......  .......  .......  .......  .......
  Housing:                                                                                                                                                                                      
    Exclusion of interest on owner-occupied mortgage subsidy bonds      725      720      705      680      660      635      610    1,085    1,090    1,065    1,030      995      970      930
    Exclusion of interest on State and local debt for rental                                                                                                                                    
     housing......................................................      365      345      320      300      275      245      215      560      530      495      460      425      385      330
    Deductibility of mortgage interest on owner-occupied homes....  .......  .......  .......  .......  .......  .......  .......   48,080   50,575   53,075   55,750   58,590   61,655   64,915
    Deductibility of State and local property tax on owner-                                                                                                                                     
     occupied homes...............................................  .......  .......  .......  .......  .......  .......  .......   15,275   16,070   16,860   17,710   18,615   19,590   20,620
    Deferral of income from post 1987 installment sales...........      235      245      255      265      275      285      295      700      710      720      730      740      750      760
    Deferral of capital gains on home sales.......................  .......  .......  .......  .......  .......  .......  .......   14,180   14,605   15,040   15,490   15,955   16,435   16,930
    Exclusion of capital gains on home sales for persons age 55                                                                                                                                 
     and over.....................................................  .......  .......  .......  .......  .......  .......  .......    5,160    5,185    5,075    5,465    5,280    5,755    5,480
    Exception from passive loss rules for $25,000 of rental loss..  .......  .......  .......  .......  .......  .......  .......    4,515    4,235    3,985    3,745    3,520    3,305    3,070
    Accelerated depreciation on rental housing (normal tax method)      660      735      820      945    1,080    1,495    1,730      385      435      485      540      595      670      725
[[Page 66]]
  Commerce:                                                                                                                                                                                     
    Cancellation of indebtedness..................................  .......  .......  .......  .......  .......  .......  .......      105       70       40       15        0      -10       -5
    Permanent exceptions from imputed interest rules..............  .......  .......  .......  .......  .......  .......  .......      150      150      155      155      160      160      160
    Capital gains (other than agriculture, timber, iron ore, and                                                                                                                                
     coal) (normal tax method)....................................  .......  .......  .......  .......  .......  .......  .......    7,125    7,000    6,920    7,035    7,195    7,385    7,560
    Capital gains exclusion of small corporation stock............  .......  .......  .......  .......  .......  .......  .......        0        0        0        5       30       70      110
    Step-up basis of capital gains at death.......................  .......  .......  .......  .......  .......  .......  .......   28,305   29,480   30,265   30,710   31,160   31,615   32,075
    Carryover basis of capital gains on gifts.....................  .......  .......  .......  .......  .......  .......  .......      130      140      150      160      170      180      190
    Ordinary income treatment of loss from small business                                                                                                                                       
     corporation stock sale.......................................  .......  .......  .......  .......  .......  .......  .......      105      215      305      370      380      355      305
    Accelerated depreciation of buildings other than rental                                                                                                                                     
     housing (normal tax method)..................................    5,270    4,730    4,000    3,200    2,380    1,735    1,150    2,170    2,005    1,720    1,390    1,030      685      450
    Accelerated depreciation of machinery and equipment (normal                                                                                                                                 
     tax method)..................................................   19,760   21,575   23,235   24,460   25,790   26,115   25,040    4,700    5,585    6,265    6,750    7,240    7,460    7,200
    Expensing of certain small investments (normal tax method)....    1,120      930      685      500      385      220      135      695      590      435      295      215      100       20
    Amortization of start-up costs (normal tax method)............       85       90       90       95       95       95      100      100      105      110      110      115      115      120
    Graduated corporation income tax rate (normal tax method).....    4,105    4,435    4,730    5,015    5,345    5,710    6,085  .......  .......  .......  .......  .......  .......  .......
    Exclusion of interest on small issue IDBs.....................      215      165      135      115      110      105      105      340      270      210      180      170      160      155
    Deferral of gains from sale of broadcasting facilities to                                                                                                                                   
     minority owned business......................................      285  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
    Treatment of Alaska Native Corporations.......................       30       20       15       10        5        5        5  .......  .......  .......  .......  .......  .......  .......
                                                                                                                                                                                                
Transportation:                                                                                                                                                                                 
  Deferral of tax on shipping companies...........................       20       20       20       20       20       20       20  .......  .......  .......  .......  .......  .......  .......
  Exclusion of reimbursed employee parking expenses...............  .......  .......  .......  .......  .......  .......  .......    1,215    1,255    1,290    1,330    1,370    1,410    1,455
  Exclusion for employer-provided transit passes..................  .......  .......  .......  .......  .......  .......  .......       35       50       60       70       85      100      120
                                                                                                                                                                                                
Community and regional development:                                                                                                                                                             
  Credit for low-income housing investments.......................      450      520      590      655      700      720      690    1,810    2,080    2,355    2,615    2,800    2,875    2,755
  Investment credit for rehabilitation of structures (other than                                                                                                                                
   historic)......................................................       15       15       15       15       15       15       15       65       65       65       55       55       55       50
  Exclusion of interest on IDBs for airports, docks, and sports                                                                                                                                 
   and convention facilities......................................      345      365      390      415      440      460      485      510      545      575      610      650      685      720
  Exemption of certain mutuals' and cooperatives' income..........       50       50       50       55       55       60       60  .......  .......  .......  .......  .......  .......  .......
  Empowerment zones...............................................       75      100      120      135      140      150      150      175      230      265      290      310      325      340
                                                                                                                                                                                                
Education, training, employment, and social services:                                                                                                                                           
  Education:                                                                                                                                                                                    
    Exclusion of scholarship and fellowship income (normal tax                                                                                                                                  
     method)......................................................  .......  .......  .......  .......  .......  .......  .......      825      835      845      850      860      870      875
    Exclusion of interest on State and local student loan bonds...      125      120      115      110      105      100       95      190      185      175      165      155      150      145
    Exclusion of interest on State and local debt for private                                                                                                                                   
     nonprofit educational facilities.............................      310      320      335      350      365      385      400      460      475      495      520      545      570      590
    Exclusion of interest on savings bonds transferred to                                                                                                                                       
     educational institutions.....................................  .......  .......  .......  .......  .......  .......  .......        5        5       10       10       15       15       15
    Parental personal exemption for students age 19 or over.......  .......  .......  .......  .......  .......  .......  .......      820      825      835      870      905      955    1,015
    Deductibility of charitable contributions (education).........      170      180      190      200      210      220      230    1,610    1,690    1,775    1,865    1,955    2,055    2,155
    Exclusion of employer provided educational assistance.........  .......  .......  .......  .......  .......  .......  .......      100  .......  .......  .......  .......  .......  .......
  Training, employment, and social services:                                                                                                                                                    
    Targeted jobs credit..........................................      320      270       50       30       15        5  .......       75       55       10       10        5  .......  .......
    Exclusion of employer provided child care.....................  .......  .......  .......  .......  .......  .......  .......      725      775      830      890      955    1,025    1,100
    Exclusion of employee meals and lodging (other than military).  .......  .......  .......  .......  .......  .......  .......      545      570      600      630      665      700      735
    Credit for child and dependent care expenses..................  .......  .......  .......  .......  .......  .......  .......    2,730    2,865    3,005    3,155    3,315    3,480    3,655
    Credit for disabled access expenditures.......................      130      130      130      130      130      135      135       30       30       35       35       35       35       35
    Expensing of costs of removing certain architectural barriers                                                                                                                               
     to the handicapped...........................................       15       15       15       15       15       15       15        5        5        5        5        5        5        5
    Deductibility of charitable contributions, other than                                                                                                                                       
     education and health.........................................    4,895    5,160    5,425    5,695    5,985    6,280    6,580   14,670   15,405   16,175   16,980   17,830   18,720   19,660
    Exclusion of certain foster care payments.....................  .......  .......  .......  .......  .......  .......  .......       30       30       35       35       35       40       40
    Exclusion of parsonage allowances.............................  .......  .......  .......  .......  .......  .......  .......      265      285      300      320      345      365      390
                                                                                                                                                                                                
Health:                                                                                                                                                                                         
  Exclusion of employer contributions for medical insurance                                                                                                                                     
   premiums and medical care......................................  .......  .......  .......  .......  .......  .......  .......   59,440   64,520   70,490   77,040   84,125   91,620   99,925
  Deductibility of medical expenses...............................  .......  .......  .......  .......  .......  .......  .......    3,495    3,785    4,125    4,510    4,930    5,395    5,895
  Exclusion of interest on State and local debt for private                                                                                                                                     
   nonprofit health facilities....................................      615      640      675      705      745      780      810      920      955    1,000    1,045    1,100    1,155    1,205
  Deductibility of charitable contributions (health)..............      640      670      700      730      760      790      820    1,640    1,725    1,810    1,900    1,995    2,095    2,200
  Tax credit for orphan drug research.............................       15  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......  .......
  Special Blue Cross/Blue Shield deduction........................      125      140      100      170      185      220      280  .......  .......  .......  .......  .......  .......  .......
                                                                                                                                                                                                
Income security:                                                                                                                                                                                
  Exclusion of railroad retirement system benefits................  .......  .......  .......  .......  .......  .......  .......      430      445      450      455      460      465      470
[[Page 67]]
  Exclusion of workmen's compensation benefits....................  .......  .......  .......  .......  .......  .......  .......    4,475    4,855    5,050    5,255    5,515    5,800    6,205
  Exclusion of public assistance benefits (normal tax method).....  .......  .......  .......  .......  .......  .......  .......      570      590      635      695      740      795      850
  Exclusion of special benefits for disabled coal miners..........  .......  .......  .......  .......  .......  .......  .......       95       90       85       85       80       75       70
  Exclusion of military disability pensions.......................  .......  .......  .......  .......  .......  .......  .......      130      130      130      130      130      130      130
  Net exclusion of pension contributions and earnings:                                                                                                                                          
    Employer plans................................................  .......  .......  .......  .......  .......  .......  .......   52,070   55,370   55,770   56,205   56,625   57,045   57,470
    Individual Retirement Accounts................................  .......  .......  .......  .......  .......  .......  .......    7,720    7,830    7,940    8,335    8,420    8,455    8,490
    Keogh plans...................................................  .......  .......  .......  .......  .......  .......  .......    3,315    3,345    3,580    3,780    3,935    4,090    4,240
  Exclusion of employer provided death benefits...................  .......  .......  .......  .......  .......  .......  .......       30       35       35       35       40       40       45
  Exclusion of other employee benefits:                                                                                                                                                         
    Premiums on group term life insurance.........................  .......  .......  .......  .......  .......  .......  .......    2,880    3,020    3,170    3,325    3,485    3,660    3,865
    Premiums on accident and disability insurance.................  .......  .......  .......  .......  .......  .......  .......      150      155      165      175      185      195      205
    Income of trusts to finance supplementary unemployment                                                                                                                                      
     benefits.....................................................  .......  .......  .......  .......  .......  .......  .......       20       20       20       20       20       20       20
  Special ESOP rules (other than investment credit)...............    2,125    1,745    1,540    1,405    1,280    1,170    1,065  .......  .......  .......  .......  .......  .......  .......
  Additional deduction for the blind..............................  .......  .......  .......  .......  .......  .......  .......       25       25       25       25       25       30       30
  Additional deduction for the elderly............................  .......  .......  .......  .......  .......  .......  .......    1,305    1,320    1,340    1,355    1,365    1,375    1,385
  Tax credit for the elderly and disabled.........................  .......  .......  .......  .......  .......  .......  .......       50       55       55       60       60       65       65
  Deductibility of casualty losses................................  .......  .......  .......  .......  .......  .......  .......      800      445      465      490      515      540      570
  Earned income credit\2\.........................................  .......  .......  .......  .......  .......  .......  .......    4,920    5,670    6,250    6,460    6,820    7,105    7,510
                                                                                                                                                                                                
Social Security:                                                                                                                                                                                
  Exclusion of social security benefits:                                                                                                                                                        
    OASI benefits for retired workers.............................  .......  .......  .......  .......  .......  .......  .......   16,015   16,465   17,285   18,080   18,880   19,525   20,515
    Disability insurance benefits.................................  .......  .......  .......  .......  .......  .......  .......    1,975    2,180    2,375    2,580    2,800    3,030    3,265
    Benefits for dependents and survivors.........................  .......  .......  .......  .......  .......  .......  .......    3,630    3,820    4,030    4,245    4,470    4,695    4,935
                                                                                                                                                                                                
Veterans benefits and services:                                                                                                                                                                 
  Exclusion of veterans disability compensation...................  .......  .......  .......  .......  .......  .......  .......    2,665    2,820    2,985    3,160    3,335    3,515    3,720
  Exclusion of veterans pensions..................................  .......  .......  .......  .......  .......  .......  .......       75       70       70       70       75       85       90
  Exclusion of GI bill benefits...................................  .......  .......  .......  .......  .......  .......  .......       50       65       70       80       90       95      100
  Exclusion of interest on State and local debt for veterans                                                                                                                                    
   housing........................................................       35       30       30       30       35       35       35       50       50       50       50       50       50       55
                                                                                                                                                                                                
General purpose fiscal assistance:                                                                                                                                                              
  Exclusion of interest on public purpose State and local debt....    5,100    5,300    5,545    5,820    6,120    6,395    6,645    7,600    7,875    8,230    8,635    9,075    9,510    9,890
  Deductibility of nonbusiness State and local taxes other than on                                                                                                                              
   owner-occupied homes...........................................  .......  .......  .......  .......  .......  .......  .......   27,735   29,175   30,620   32,160   33,800   35,570   37,445
  Tax credit for corporations receiving income from doing business                                                                                                                              
   in U.S. possessions............................................    2,745    2,795    2,855    3,025    3,205    3,400    3,600  .......  .......  .......  .......  .......  .......  .......
                                                                                                                                                                                                
Interest:                                                                                                                                                                                       
  Deferral of interest on savings bonds...........................  .......  .......  .......  .......  .......  .......  .......    1,100    1,160    1,210    1,280    1,340    1,410    1,480
                                                                                                                                                                                                
Addendum--Aid to State and local governments:                                                                                                                                                   
  Deductibility of:                                                                                                                                                                             
    Property taxes on owner-occupied homes........................  .......  .......  .......  .......  .......  .......  .......   15,275   16,070   16,860   17,710   18,615   19,590   20,620
    Nonbusiness State and local taxes other than on owner-occupied                                                                                                                              
     homes........................................................  .......  .......  .......  .......  .......  .......  .......   27,735   29,175   30,620   32,160   33,800   35,570   37,445
  Exclusion of interest on:                                                                                                                                                                     
    Public purpose State and local debt...........................    5,100    5,300    5,545    5,820    6,120    6,395    6,645    7,600    7,875    8,230    8,635    9,075    9,510    9,890
    IDBs for certain energy facilities............................       70       70       70       70       70       65       65      105      110      110      105      105      100       95
    IDBs for pollution control and sewage and waste disposal                                                                                                                                    
     facilities...................................................      255      250      245      240      235      230      220      380      380      370      365      365      345      335
    Small-issue IDBs..............................................      215      165      135      115      110      105      105      340      270      210      180      170      160      155
    Owner-occupied mortgage revenue bonds.........................      725      720      705      680      660      635      610    1,085    1,090    1,065    1,030      995      970      930
    State and local debt for rental housing.......................      365      345      320      300      275      245      215      560      530      495      460      425      385      330
    IDBs for airports, docks, and sports and convention facilities      345      365      390      415      440      460      485      510      545      575      610      650      685      720
    State and local student loan bonds............................      125      120      115      110      105      100       95      190      185      175      165      155      150      145
    State and local debt for private nonprofit educational                                                                                                                                      
     facilities...................................................      310      320      335      350      365      385      400      460      475      495      520      545      570      590
    State and local debt for private nonprofit health facilities..      615      640      675      705      745      780      810      920      955    1,000    1,045    1,100    1,155    1,205
    State and local debt for veterans housing.....................       35       30       30       30       35       35       35       50       50       50       50       50       50       55
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
\1\In addition, the partial exemption from the excise tax for alcohol fuels results in a reduction in excise tax receipts (in millions of dollars) as follows: 1995: $615; 1996: $645; 1997:    
  $665; 1998: $685; 1999: $705; 2000: $730; and 2001: $750.                                                                                                                                     
\2\The figures in the table indicate the effect of the earned income tax credit on receipts. The effect on outlays (in millions of dollars) is as follows: 1995: $15,245; 1996: $18,655; 1997:  
  $20,450; 1998: $21,255; 1999: $22,175; 2000: $23,210; and 2001: $24,115.                                                                                                                      
Note: Provisions with estimates denoted ``normal tax method'' have no revenue loss under the reference tax law method.                                                                          
All estimates have been rounded to the nearest $5 million.                                                                                                                                      
[[Page 68]]
                 Interpreting Tax Expenditure Estimates
  Tax expenditure revenue loss estimates do not necessarily equal the 
increase in Federal revenues (or the reduction in budget deficits) that 
would result from repealing the special provisions, for the following 
reasons: