[JPRT 106-13-99]
[From the U.S. Government Publishing Office]



                                     

                        [JOINT COMMITTEE PRINT]


 
                       ESTIMATES OF FEDERAL TAX
                           EXPENDITURES FOR
                        FISCAL YEARS 2000-2004

                            Prepared for the

                      COMMITTEE ON WAYS AND MEANS

                                and the

                          COMMITTEE ON FINANCE

                               __________

                          By the Staff of the

                      JOINT COMMITTEE ON TAXATION

[GRAPHIC] [TIFF OMITTED] TONGRESS.#13


                           DECEMBER 22, 1999






                      U.S. GOVERNMENT PRINTING OFFICE
61-287                        WASHINGTON : 1999              JCS-13-99




                      JOINT COMMITTEE ON TAXATION

                      106th Congress, 1st Session
                                 ------                                
               HOUSE                               SENATE
BILL ARCHER, Texas,                  WILLIAM V. ROTH, Jr., Delaware,
  Chairman                             Vice Chairman
PHILIP M. CRANE, Illinois            CHARLES GRASSLEY, Iowa
WILLIAM M. THOMAS, California        ORRIN G. HATCH, Utah
CHARLES B. RANGEL, New York          DANIEL PATRICK MOYNIHAN, New York
FORTNEY PETE STARK, California       MAX BAUCUS, Montana
                     Lindy L. Paull, Chief of Staff
               Bernard A. Schmitt, Deputy Chief of Staff
                 Mary M. Schmitt, Deputy Chief of Staff
              Richard A. Grafmeyer, Deputy Chief of Staff

                                  (II)




                            C O N T E N T S

                              ----------                              
                                                                   Page
Introduction.....................................................     1

 I. The Concept of Tax Expenditures...................................2

II. Measurement of Tax Expenditures..................................12

III.Tax Expenditure Estimates........................................14


        Table 1. Tax Expenditure Estimates by Budget Function, 
            Fiscal Years 2000-2004...............................    15

        Table 2. Distribution of All Returns, Taxable Returns, 
            Itemized Returns, and Tax Liability by Income Class..    25

        Table 3. Distribution of Selected Individual Tax 
            Expenditures by Income Class.........................    26

                                 (III)




                              INTRODUCTION

    This report \1\ on tax expenditures for fiscal years 2000-
2004 is prepared by the staff of the Joint Committee on 
Taxation (``Joint Committee staff'') for the House Committee on 
Ways and Means and the Senate Committee on Finance. The report 
also is submitted to the House and Senate Committees on the 
Budget.
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    \1\ This report may be cited as follows: Joint Committee on 
Taxation, Estimates of Federal Tax Expenditures for Fiscal Years 2000-
2004 (JCS-13-99), December 22, 1999.
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    As in the case of earlier reports,\2\ the estimates of tax 
expenditures in this report were prepared in consultation with 
the staff of the Office of Tax Analysis in the Treasury 
Department (``the Treasury''). The Treasury published its 
estimates of tax expenditures for fiscal years 1998-2004 in the 
Administration's budgetary statement of February 1999.\3\ The 
lists of tax expenditures in this Joint Committee staff report 
and the Administration's budgetary statement overlap 
considerably; the differences are discussed in Part I of this 
report under the heading ``Comparisons with Treasury.''
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    \2\ Joint Committee on Taxation, Estimates of Federal Tax 
Expenditures, October 4, 1972, June 1, 1973, July 8, 1975, March 15, 
1976, March 16, 1977, March 14, 1978, March 15, 1979, March 6, 1980, 
March 16, 1981, March 8, 1982, March 7, 1983, November 9, 1984, April 
12, 1985, March 1, 1986, February 27, 1987, March 8, 1988, February 28, 
1989, March 9, 1990, March 11, 1991, April 24, 1992, April 22, 1993, 
November 9, 1994, September 1, 1995, November 26, 1996, December 15, 
1997, and December 14, 1998.
    \3\ Office of Management and Budget, ``Tax Expenditures,'' Budget 
of the United States Government: Analytical Perspectives, Fiscal Year 
2000, February 1, 1999, pp. 105-136.
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    The Joint Committee staff has made its estimates (as shown 
in Table 1) based on the provisions in tax law as enacted 
through December 17, 1999. Expired or repealed provisions are 
not listed unless they have continuing revenue effects that are 
associated with ongoing taxpayer activity. Proposed extensions 
or modifications of expiring provisions are not included until 
they have been enacted into law.
    Part I of this report contains a discussion of the concept 
of tax expenditures. Part II is a discussion of the measurement 
of tax expenditures. Estimates of tax expenditures for fiscal 
years 2000-2004 are presented in Table 1 in Part III. Table 2 
shows the distribution of tax returns by income class, and 
Table 3 presents distributions of selected individual tax 
expenditures by income class.

                   I. THE CONCEPT OF TAX EXPENDITURES

Overview
    ``Tax expenditures'' are defined under the Congressional 
Budget and Impoundment Control Act of 1974 (``the Budget Act'') 
as ``revenue losses attributable to provisions of the Federal 
tax laws which allow a special exclusion, exemption, or 
deduction from gross income or which provide a special credit, 
a preferential rate of tax, or a deferral of tax liability.'' 
\4\ Thus, tax expenditures include any reductions in income tax 
liabilities that result from special tax provisions or 
regulations that provide tax benefits to particular taxpayers.
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    \4\ Congressional Budget and Impoundment Control Act of 1974 (P.L. 
93-344), sec. 3(3).
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    Special income tax provisions are referred to as tax 
expenditures because they may be considered to be analogous to 
direct outlay programs, and the two can be considered as 
alternative means of accomplishing similar budget policy 
objectives. Tax expenditures are most similar to those direct 
spending programs that have no spending limits, and that are 
available as entitlements to those who meet the statutory 
criteria established for the programs.\5\
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    \5\ There are a few tax expenditures that have statutorily imposed 
limits. One example is the tax credit for low-income rental housing. 
This credit is available only to those who have received credit 
allocations from State housing authorities. There are statutory limits 
on the total amounts of credit allocations that the States can make 
each year.
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    Estimates of tax expenditures are prepared for use in 
budget analysis. They are a measure of the economic benefits 
that are provided through the tax laws to various groups of 
taxpayers and sectors of the economy. The estimates also may be 
useful in determining the relative merits of achieving 
specified public goals through tax benefits or direct outlays.
    The legislative history of the Budget Act indicates that 
tax expenditures are to be defined with reference to a normal 
income tax structure (referred to here as ``normal income tax 
law''). The Joint Committee staff has used its judgment in 
distinguishing between those income tax provisions (and 
regulations) that can be viewed as a part of normal income tax 
law and those special provisions that result in tax 
expenditures. A provision traditionally has been listed as a 
tax expenditure by the Joint Committee staff if there is a 
reasonable basis for such classification and the provision 
results in more than a de minimis revenue loss, which solely 
for this purpose means a total revenue loss of at least $50 
million over the five fiscal years 2000-2004. The Joint 
Committee staff emphasizes, however, that in the process of 
listing tax expenditures, no judgment is made, nor any 
implication intended, about the desirability of any special tax 
provision as a matter of public policy.
    If a tax expenditure provision were eliminated, Congress 
might choose to continue financial assistance through other 
means rather than terminate all Federal assistance for the 
activity. If a replacement spending program were enacted, the 
higher revenues received as a result of the elimination of a 
tax expenditure might not represent a net budget gain. A 
replacement program could involve direct expenditures, direct 
loans or loan guarantees, regulatory activity, a different form 
of tax expenditure, or a general reduction in tax rates. Joint 
Committee staff estimates of tax expenditures do not anticipate 
such policy responses.
    The Budget Act uses the term tax expenditure to refer to 
the special tax provisions that are contained in the Federal 
income taxes on individuals and corporations.\6\ Other Federal 
taxes such as excise taxes, employment taxes, and estate and 
gift taxes may also have exceptions, exclusions, and credits, 
but those special tax provisions are not included in this 
report because they are not part of the income tax. Thus, for 
example, the income tax exclusion for employer-paid health 
insurance is included, but the Federal Insurance Contributions 
Act (``FICA'') tax exclusion for employer-paid health insurance 
is not treated as a tax expenditure.\7\
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    \6\ The Federal income tax on individuals also applies to estates 
and trusts, which are subject to a separate income tax rate schedule 
(Internal Revenue Code section 1(e)). Estates and trusts may benefit 
from some of the same tax expenditure provisions that apply to 
individuals. In Table 1 of this report, the tax expenditures that apply 
to estates and trusts have been included in the estimates of tax 
expenditures for individual taxpayers.
    \7\ In its budget statement, the Treasury Department identifies tax 
expenditures in the unified transfer tax (the estate and gift tax and 
the generation-skipping transfer tax). See, Office of Management and 
Budget, ``Tax Expenditures,'' February 1, 1999, pp. 135-136. Other 
analysts have explored applying the concept of tax expenditures to the 
payroll and excise taxes. See, Jonathan Barry Forman, ``Would a Social 
Security Tax Expenditure Budget Make Sense?'' Public Budgeting and 
Financial Management, 5, 1993, pp. 311-335, and Bruce F. Davie, ``Tax 
Expenditures in the Federal Excise Tax System,'' National Tax Journal, 
XLVII, March 1994, pp. 39-62.
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    Some provisions in the Internal Revenue Code provide for 
special tax treatment that is less favorable than normal income 
tax law. Examples of such provisions include (1) the denial of 
deductions for certain lobbying expenses, (2) the denial of 
deductions for certain executive compensation, and (3) the 2-
percent floor on itemized deductions for unreimbursed employee 
expenses. Tax provisions that provide treatment less favorable 
than normal income tax law are not shown in this report because 
they are not included in the statutory definition of a tax 
expenditure.
Individual Income Tax
    Under the Joint Committee staff methodology, the normal 
structure of the individual income tax includes the following 
major components: one personal exemption for each taxpayer and 
one for each dependent, the standard deduction, the existing 
tax rate schedule, and deductions for investment and employee 
business expenses. Most other tax benefits to individual 
taxpayers can be classified as exceptions to ``normal income 
tax law.''
    Personal exemptions and the standard deduction are treated 
as part of normal income tax law because one may consider these 
amounts as approximating the level of income below which it 
would be difficult for an individual or a family to obtain 
minimal amounts of food, clothing, and shelter. Those itemized 
deductions that are not necessary for the generation of income 
are classified as tax expenditures, but only to the extent that 
they exceed the standard deduction level.
    Under present law, all employee compensation is subject to 
tax unless the tax code contains a specific exclusion for the 
income. There are specific exclusions for the following 
employer-provided benefits: coverage under accident and health 
plans,\8\ accident and disability insurance, group term life 
insurance, educational assistance, transportation benefits 
(parking, van pools, and transit passes), child care, meals and 
lodging (furnished for the convenience of the employer), 
employee awards, and other miscellaneous fringe benefits (e.g., 
employee discounts, services provided to employees at no 
additional cost to employers, tuition reductions, and de 
minimis fringe benefits). Each of these exclusions is 
classified as a tax expenditure in this report.
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    \8\ Present law contains an exclusion for employer-provided 
coverage under accident and health plans (sec. 106 of the Internal 
Revenue Code of 1986, the ``Code'') and an exclusion for benefits 
received by employees under employer-provided accident and health plans 
(Code sec. 105(b)). These two exclusions are viewed as a single tax 
expenditure. Under normal income tax law, the value of employer-
provided accident and health coverage would be includable in the income 
of employees, but employees would not be subject to tax on the accident 
and health insurance benefits (reimbursements) that they might receive.
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    Under normal income tax law, employer contributions to 
pension plans and income earned on pension assets would be 
taxable to employees as the contributions are made and as the 
income is earned, and employees would not receive any deduction 
or exclusion for their pension contributions. Under present 
law, employer contributions to qualified pension plans and 
employee contributions made at the election of the employee 
through salary reduction are not taxed until distributed to the 
employee during retirement, and income earned on pension assets 
is not taxed until distributed during retirement. The tax 
expenditure for ``net exclusion of pension contributions and 
earnings'' is computed as the income taxes forgone on current 
tax-excluded pension contributions and earnings less the income 
taxes paid on current pension distributions to retirees.
    Under present law, social security retirement benefits are 
fully or partially excluded from gross income.\9\ Under normal 
income tax law, retirees would be entitled to an exclusion for 
only the portion of social security retirement benefits that 
represents a return of the social security taxes that they paid 
during their working years. Thus, the exclusion of social 
security retirement benefits in excess of social security tax 
payments is classified as a tax expenditure.
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    \9\ For taxpayers with modified adjusted gross incomes above 
certain levels, up to 85 percent of social security retirement benefits 
are includable in income.
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    All Medicare benefits are excluded from taxation. The value 
of Medicare Part A insurance generally is greater than the 
Health Insurance (``HI'') tax contributions that enrollees made 
during their working years, and the value of Medicare Part B 
insurance generally is greater than the Part B premium that 
enrollees must pay. The exclusion of the value of Medicare Part 
A insurance in excess of HI tax contributions is classified as 
a tax expenditure, and the exclusion of the value of Medicare 
Part B insurance in excess of premiums paid also is classified 
as a tax expenditure.
    Public assistance benefits are excluded from gross income 
by law or by Internal Revenue Service regulations. Table 1 
contains tax expenditure estimates for workers' compensation 
benefits, special benefits for disabled coal miners, and cash 
public assistance benefits (which include Supplemental Security 
Income (``SSI'') benefits and Temporary Assistance for Needy 
Families (``TANF'') benefits).
    The individual income tax does not include in gross income 
the imputed income that individuals receive from the services 
provided by owner-occupied homes and durable goods.\10\ 
However, the Joint Committee staff does not classify this 
exclusion as a tax expenditure. The measurement of imputed 
income for tax purposes presents administrative problems and 
its exclusion from taxable income may be regarded as an 
administrative necessity.\11\
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    \10\ The National Income and Product Accounts include estimates of 
this imputed income. The accounts appear in U.S. Department of 
Commerce, Bureau of Economic Analysis, Survey of Current Business, 
published monthly.
    \11\ If the imputed income from owner-occupied homes were included 
in adjusted gross income, it would be proper to include all mortgage 
interest deductions and related property tax deductions as part of the 
normal income tax structure, since interest and property tax deductions 
would be allowable as a cost of producing imputed income. It also would 
be appropriate to allow deductions for depreciation and maintenance 
expenses for owner-occupied homes.
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    Under normal income tax law, individuals would be allowed 
to deduct only the interest on indebtedness incurred in 
connection with a trade or business or an investment. Thus, the 
deduction for mortgage interest on a principal or second 
residence is classified as a tax expenditure.
    The Joint Committee staff assumes that, for administrative 
feasibility, normal income tax law would tax capital gains in 
full in the year the gains are realized through sale or 
exchange. Thus, the deferral of tax until realization is not 
classified as a tax expenditure, but reduced rates of tax, 
further deferrals of tax (beyond the year of sale or exchange), 
and exclusions of certain capital gains are classified as tax 
expenditures.
    It also is assumed that normal income tax law would not 
provide for any indexing of the basis of capital assets for 
changes in the general price level. Thus, under normal income 
tax law (as under present law), the income tax would be levied 
on nominal gains as opposed to real gains in asset values. If, 
as an alternative, normal income tax law were defined to 
include full indexing of the basis of capital assets, the 
capital gains tax expenditure estimates in Table 1 generally 
would be much lower than those shown.
    There are many types of State and local government bonds 
and private purpose bonds that qualify for tax-exempt status 
for Federal income tax purposes. Table 1 contains a separate 
tax expenditure listing for each type of bond.
Business Income Taxation
    Regardless of the legal form of organization (sole 
proprietorship, partnership, or S or C corporation), the same 
general principles are used in the computation of taxable 
business income. Thus, most business tax expenditures apply 
equally to unincorporated and incorporated businesses.
    One of the most difficult issues in defining tax 
expenditures for business income relates to the tax treatment 
of capital costs. Under present law, capital costs may be 
recovered under a variety of alternative methods, depending 
upon the nature of the costs and the status of the taxpayer. 
For example, investments in equipment and structures may 
qualify for tax credits, expensing, accelerated depreciation, 
or straight-line depreciation. The Joint Committee staff 
generally classifies as tax expenditures cost recovery 
allowances that are more favorable than those provided under 
the alternative depreciation system (sec. 168(g)), which 
provides for straight-line recovery over tax lives that are 
longer than those permitted under the accelerated system.
    As indicated above, the Joint Committee staff assumes that 
normal income tax law would not provide for any indexing of the 
basis of capital assets. Thus, normal income tax law would not 
take into account the effects of inflation on tax depreciation. 
The expensing and depreciation tax expenditure estimates in 
Table 1 are larger than would be the case if normal income tax 
law provided for inflation adjustments in the basis of assets 
for tax depreciation purposes.
    The Joint Committee staff uses several accounting standards 
in evaluating the provisions in the Code that govern the 
recognition of business receipts and expenses. Under the Joint 
Committee staff view, normal income tax law is assumed to 
require the accrual method of accounting, the standard of 
``economic performance'' (used in the Code to test whether 
liabilities are deductible), and the general concept of 
matching income and expenses. In general, tax provisions that 
do not satisfy all three standards are viewed as tax 
expenditures. For example, the deduction for contributions to 
taxpayer-controlled mining reclamation reserve accounts is 
viewed as a tax expenditure because the contributions do not 
satisfy the economic performance standard. (Adherence to the 
standard would require that the taxpayer make an irrevocable 
contribution toward future reclamation, involving a trust fund 
or similar mechanism, as occurs in a number of areas in the 
Code.) The deduction for contributions to nuclear 
decommissioning trust accounts is not viewed as a tax 
expenditure because the contributions are irrevocable (i.e., 
they satisfy the economic performance standard). However, 
present law provides for a reduced rate of tax on the income of 
nuclear decommissioning trust accounts, and this reduced rate 
of tax is viewed as a tax expenditure.
    The alternative minimum tax (``AMT'') and the passive 
activity loss rules are not viewed by the Joint Committee staff 
as a part of normal income tax law. Instead, they are viewed as 
provisions that reduce the magnitude of the tax expenditures to 
which they apply. For example, the AMT reduces the value of 
business tax credits (for those taxpayers subject to the AMT) 
by not allowing the tax credits to be claimed in the 
calculation of AMT liability. Similarly, the passive loss rules 
defer otherwise allowable deductions and credits from passive 
activities until a time when the taxpayer has passive income or 
disposes of the assets associated with the passive activity. 
Exceptions to the AMT and the passive loss rules are not 
classified as tax expenditures by the Joint Committee staff 
because the effects of the exceptions already are incorporated 
in the estimates of related tax expenditures.
Corporate Income Tax
    The income of corporations (other than S corporations) 
generally is subject to the corporate income tax. The corporate 
income tax includes a graduated tax rate schedule. The lower 
tax rates in the schedule are classified by the Joint Committee 
staff as a tax expenditure (as opposed to normal income tax 
law) because they are intended to provide tax benefits to small 
business and, unlike the graduated individual income tax rates, 
are unrelated to concerns about ability of individuals to pay 
taxes.
    Certain income of pass-through entities is exempt from the 
corporate income tax. The income of sole proprietorships, S 
corporations, and most partnerships is taxed only at the 
individual level. The special tax rules for these pass-through 
entities are not classified as tax expenditures because the tax 
benefits are available to any entity that chooses to organize 
itself and operate in the required manner in order to avoid the 
corporate income tax.
    Nonprofit corporations that satisfy the requirements of 
Code section 501 also generally are exempt from corporate 
income tax. The tax exemption of certain nonprofit cooperative 
business organizations, such as trade associations, is not 
treated as a tax expenditure for the same reason applicable to 
for-profit pass-through business entities. With respect to 
other nonprofit organizations, such as charities, tax-exempt 
status is not classified as a tax expenditure because the 
nonbusiness activities of such organizations generally must 
predominate and their unrelated business activities are subject 
to tax. In general, the imputed income derived from nonbusiness 
activities conducted by individuals or collectively by certain 
nonprofit organizations is outside the normal income tax base. 
However, the ability of donors to such nonprofit organizations 
to claim a charitable contribution deduction is a tax 
expenditure (because such contributions do not generate income 
to the donor), as is the exclusion of income granted to holders 
of tax-exempt financing issued by charities.
Recent Legislation
    The Ticket to Work and Work Incentives Improvement Act of 
1999 (H.R. 1180, the ``Ticket to Work Act''), enacted on 
December 17, 1999, extended and modified a number of tax 
expenditures, as follows:
    --The work opportunity tax credit, which expired after June 
30, 1999, was extended through December 31, 2001.
    --The welfare-to-work tax credit, which expired after June 
30, 1999, was extended through December 31, 2001.
    --The exclusion for employer-provided assistance for 
undergraduate education, which was scheduled to expire for 
courses of instruction beginning after June 1, 2000, was 
extended to include courses beginning before January 1, 2002.
    --The tax credit for first-time homebuyers of a principal 
residence in the District of Columbia, which was effective for 
property purchased after August 6, 1997, and prior to January 
1, 2001, was extended to include property purchased prior to 
January 1, 2002.
    --The exemption from Subpart F for the active financing 
income of controlled foreign corporations, which was scheduled 
to expire for taxable years beginning after December 31, 1999, 
was extended for taxable years beginning before January 1, 
2002. (This tax expenditure is referred to in Table 1 as 
``deferral of certain financing income.'')
    --The tax credit for qualified research expenditures (Code 
sec. 41), which expired after June 30, 1999, was extended for 
the period July 1, 1999, through June 30, 2004, with 
modifications.
    --The suspension of the 100-percent net income limitation 
for marginal oil and gas properties, which was scheduled to 
expire for taxable years beginning after December 31, 1999, was 
extended for taxable years beginning before January 1, 2002. 
This suspension increases the tax expenditure for ``excess of 
percentage over cost depletion for oil and gas properties.''
    --The tax credit for electricity produced from wind and 
closed-loop biomass facilities, which was scheduled to expire 
for facilities placed in service after June 30, 1999, was 
extended to include facilities placed in service before January 
1, 2002, and was modified to include electricity produced from 
poultry waste, effective for facilities placed in service after 
December 31, 1999, and before January 1, 2002.
    --The deduction for certain environmental remediation 
expenditures that would otherwise be chargeable to a capital 
account (``brownfields''), which was effective for eligible 
expenditures incurred in taxable years ending after August 5, 
1997, and before January 1, 2001, was extended to include 
expenditures incurred in taxable years ending before January 1, 
2002.
    --The definition of an eligible foster child was modified 
for purposes of the earned income tax credit, effective for 
taxable years beginning after December 31, 1999. This 
modification reduces the earned income tax credit tax 
expenditure.
    --The installment method of accounting was repealed for 
most accrual basis taxpayers. This reduces the tax expenditure 
associated with the ``deferral of gain on non-dealer 
installment sales.''
    --Present law provides a tax credit to certain financial 
institutions holding ``qualified zone academy bonds'' that are 
issued by State and local governments to finance improvements 
at qualifying public schools in empowerment zones, enterprise 
communities, and other areas. A total of $400 million in 
qualified zone academy bonds were authorized to be issued in 
each of the years 1998 and 1999. The Ticket to Work Act 
authorizes up to $400 million of these bonds to be issued in 
each of the years 2000 and 2001, and limits the extent to which 
unused bond authorizations can be carried forward by the States 
to subsequent calendar years.
    The Ticket to Work Act also contained a provision that 
allows nonrefundable personal credits to offset the regular tax 
for taxable years beginning in 1999, and allows nonrefundable 
personal credits to offset both the regular tax and the 
alternative minimum tax in taxable years beginning in 2000 and 
2001. This provision will allow taxpayers to receive greater 
benefits from the nonrefundable personal credits. Thus, in 
Table 1, the tax expenditure estimates for these credits are 
larger than would otherwise be the case.
Comparisons with Treasury Department
    The Joint Committee staff and Treasury lists of tax 
expenditures differ in two respects. First, the Treasury uses a 
different classification of those provisions that can be 
considered a part of normal income tax law under both the 
individual and business income taxes. In general, the Joint 
Committee staff methodology involves a narrower concept of 
normal income tax law. Thus, the Joint Committee list of tax 
expenditures includes some provisions that are not contained in 
the Treasury list. The cash method of accounting provides an 
example. The Treasury considers the cash accounting option for 
certain businesses as a part of normal income tax law, but the 
Joint Committee staff methodology treats it as a departure from 
normal income tax law that constitutes a tax expenditure.
    Second, the Joint Committee staff list excludes those 
provisions that are estimated to result in revenue losses below 
the de minimis amount, i.e., less than $50 million over the 
five fiscal years 2000-2004. The Treasury does not have a de 
minimis exception. Thus, the Treasury list of tax expenditures 
includes some provisions that are not contained in the Joint 
Committee staff list.
    The Joint Committee staff and Treasury estimates of tax 
expenditures span slightly different sets of years. The 
Treasury's estimates cover a seven-year period--the last fiscal 
year, the current fiscal year when the President's budget is 
submitted, and the next five fiscal years, i.e., fiscal years 
1998-2004. The Joint Committee staff estimates cover the 
current fiscal year and the succeeding four fiscal years, i.e., 
fiscal years 2000-2004.
    For the past eight years, the President's budget has 
contained a section that reviews and tabulates the estate and 
gift tax provisions that the Treasury considers as tax 
expenditures. The Joint Committee staff considers estate and 
gift tax provisions as being outside of the normal income tax 
structure and thus omits them from its list of tax 
expenditures.
    In some cases, two or more of the tax expenditure items in 
the Treasury list have been combined into a single item in the 
Joint Committee staff list, and vice versa. The Table 1 
descriptions of some tax expenditures also may vary from the 
descriptions used by the Treasury.
    The following is a list of tax expenditure provisions in 
the Joint Committee staff list that are not classified as tax 
expenditures by the Treasury: \12\
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    \12\ There are two additional tax expenditure provisions in the 
Joint Committee staff list that are not classified a tax expenditures 
by the Treasury: the expensing of tertiary injectants and the exclusion 
of investment income from structured settlement amounts. These 
provisions are not listed in Table 1 because the estimated revenue 
losses are below the de minimis amount ($50 million over the five 
fiscal years 2000-2004).
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Natural resources and environment
--Exclusion of contributions in aid of construction for water 
            and sewer utilities
--Special rules for mining reclamation reserves
--Special tax rate for nuclear decommissioning reserve funds
Agriculture
--Exclusion of cost-sharing payments
--Cash accounting for agriculture
--Five-year carryback period for net operating losses 
            attributable to farming
Insurance companies
--Special treatment of life insurance company reserves
--Deduction of unpaid property loss reserves of property and 
            casualty companies
Business and commerce
--Expensing of magazine circulation expenditures
--Special rules for magazine, paperback book, and record 
            returns
--Completed contract rules
--Cash accounting, other than agriculture
--Deferral of gain on like-kind exchanges
--Exception from net operating loss limitations for 
            corporations in bankruptcy
--Tax credit for employer-paid FICA taxes on tips
--Deferral of gain on involuntary conversions resulting from 
            Presidentially-declared disasters
Employment
--Exclusion of miscellaneous fringe benefits
--Exclusion of employee awards
--Exclusion of income earned by voluntary employee beneficiary 
            associations
Medicare
--Exclusion of untaxed Medicare benefits for Hospital Insurance
--Exclusion of untaxed Medicare benefits for Supplementary 
            Medical Insurance

    The following is a list of the tax expenditure provisions 
that are included in the Treasury list but are excluded from 
the Joint Committee staff list because the estimated revenue 
losses are below the de minimis amount (less than $50 million 
over the five fiscal years 2000-2004):
Energy
--Tax credit for electric vehicles
--Deductions for clean-fuel vehicles and refueling property
Natural resources and environment
--Tax credit and seven-year amortization for reforestation 
            expenditures
Agriculture
--Deferral of tax on gains from the sale of stock in a 
            qualified refiner or processor to an eligible 
            farmer's cooperative
Financial institutions
--Bad debt reserves of financial institutions
Insurance companies
--Special alternative tax on small property and casualty 
            insurance companies
--Tax exemption for insurance companies owned by tax-exempt 
            organizations
Business and commerce
--Ordinary income treatment of losses from sales of small 
            business corporation stock
--Exclusion of income from discharge of indebtedness incurred 
            in connection with qualified real property
Social services
--Expensing of costs for removing architectural barriers

    There are three additional tax expenditure provisions in 
the Treasury list that are not included in the Joint Committee 
staff list. Two of the provisions involve exceptions to the 
passive loss rules: the exception for working interests in oil 
and gas properties, and the exception for up to $25,000 of 
rental losses. The Joint Committee staff does not classify 
these two provisions as tax expenditures; the revenue effects 
of the passive loss rules (and exceptions to the rules) are 
included in the estimates of the tax expenditure provisions 
that are affected by the rules.\13\ The third tax expenditure 
in the Treasury list that is not included in the Joint 
Committee staff list is the exemption of certain income of 
telephone and electric cooperatives. The Joint Committee staff 
does not classify this provision as a tax expenditure because 
the special tax rules for pass-through entities are assumed to 
be a part of normal tax law.\14\
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    \13\ See discussion of the alternative minimum tax and passive loss 
rules, above on page 6.
    \14\ See discussion on page 7, above.

                  II. MEASUREMENT OF TAX EXPENDITURES

Tax Expenditure Estimates Generally
    A tax expenditure is measured by the difference between tax 
liability under present law and the tax liability that would 
result from a recomputation of tax without benefit of the tax 
expenditure provision. Taxpayer behavior is assumed to remain 
unchanged for tax expenditure estimate purposes.\15\
---------------------------------------------------------------------------
    \15\ An alternative way to measure tax expenditures is to express 
their values in terms of ``outlay equivalents.'' An outlay equivalent 
is the dollar size of a direct spending program that would provide 
taxpayers with net benefits that would equal what they now receive from 
a tax expenditure. The Treasury Department presents estimates of outlay 
equivalents in the President's budget in addition to presenting 
estimates in the same manner as the Joint Committee staff.
---------------------------------------------------------------------------
    The tax expenditure estimates in this report are based on 
Congressional Budget Office and Joint Committee staff 
projections of the gross income, deductions, and expenditures 
of individuals and corporations for calendar years 1999-2004. 
These projections are used to compute tax liabilities for the 
present-law revenue baseline and tax liabilities for the 
alternative baseline that assumes that the tax expenditure 
provision does not exist.
    Internal Revenue Service (``IRS'') statistics from recent 
tax returns are used to develop projections of the tax credits, 
deductions, and exclusions that will be claimed under the 
present-law baseline. These IRS statistics show the actual 
usage of the various tax expenditure provisions. In the case of 
some tax expenditures, such as the earned income tax credit, 
there is evidence that some taxpayers are not claiming all of 
the benefits to which they are entitled, while others are 
filing claims that exceed their entitlements. The tax 
expenditure estimates in this report are based on projections 
of actual claims under the various tax provisions, not the tax 
benefits to which taxpayers are entitled.
    Some tax expenditure estimates are based partly on 
statistics for income, deductions, and expenses for prior 
years. Accelerated depreciation is an example. Estimates for 
this tax expenditure are based on the difference between tax 
depreciation deductions under present law and the deductions 
that would have been claimed in the current year if investments 
in the current year and all prior years had been depreciated 
using the alternative (normal income tax law) depreciation 
system.
    Each tax expenditure is estimated separately, under the 
assumption that all other tax expenditures remain in the tax 
code. If two or more tax expenditures were estimated 
simultaneously, the total change in tax liability could be 
smaller or larger than the sum of the amounts shown for each 
item separately, as a result of interactions among the tax 
expenditure provisions.
    Year-to-year differences in the estimates for each tax 
expenditure reflect changes in tax law, including phaseouts of 
tax expenditure provisions and changes that alter the 
definition of the normal income tax structure, such as the tax 
rate schedule, the personal exemption amount, and the standard 
deduction. Some of the estimates for this tax expenditure 
report may differ from estimates made in previous years because 
of changes in law and economic conditions, the availability of 
better data, and improved estimating techniques.
Tax Expenditures versus Revenue Estimates
    A tax expenditure estimate is not the same as a revenue 
estimate for the repeal of the tax expenditure provision for 
two reasons. First, tax expenditure estimates do not 
incorporate any changes in taxpayer behavior, whereas revenue 
estimates incorporate the effects of the behavioral changes 
that are anticipated to occur in response to the repeal of a 
tax provision. Second, tax expenditure estimates are concerned 
with changes in the tax liabilities of taxpayers. Because the 
tax expenditure focus is on tax liabilities as opposed to 
Federal government tax receipts, there is no concern for the 
timing of tax payments. Revenue estimates are concerned with 
changes in Federal tax receipts, which are affected by the 
timing of tax payments.
    If a tax expenditure provision were repealed, it is likely 
that the repeal would be made effective at the beginning of a 
calendar year. In this case, the revenue estimate for repeal 
would show a smaller revenue gain in the first fiscal year than 
in subsequent years, because the repeal would be occurring 
after the start of the government's fiscal year. The revenue 
estimate might also reflect some delay in the timing of the 
revenue gains as a result of the taxpayer tendency to postpone 
or forgo changes in tax withholding and estimated tax payments.

                     III. TAX EXPENDITURE ESTIMATES

    Tax expenditures are grouped in Table 1 in the same 
functional categories as outlays in the Federal budget. 
Estimates are shown separately for individuals and 
corporations. Those tax expenditures that do not fit clearly 
into any single budget category have been placed in the most 
appropriate category.
    Several of the tax expenditure items involve small amounts 
of revenue, and those estimates are indicated in Table 1 by 
footnote 1. For each of these items, the footnote means that 
the tax expenditure is less than $50 million in the fiscal 
year.
    Table 2 presents tax return information for each of nine 
income classes on the number of all returns filed, the number 
of all returns and taxable returns with itemized deductions, 
and the amount of tax liability.
    Table 3 provides distributional estimates by income class 
for some of the tax expenditures that affect individual 
taxpayers. Not all tax expenditures that affect individuals are 
shown in this table because of the difficulty in making 
reliable estimates of the income distribution of items that do 
not appear on tax returns under present law.

                                     Table 1.--Tax Expenditure Estimates By Budget Function, Fiscal Years 2000-2004
                                                                  [Billions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                       Corporations                                 Individuals                   Total
                       Function                       ------------------------------------------------------------------------------------------  2000-
                                                         2000     2001     2002     2003     2004     2000     2001     2002     2003     2004     2004
--------------------------------------------------------------------------------------------------------------------------------------------------------
National Defense
  Exclusion of benefits and allowances to Armed        .......  .......  .......  .......  .......      2.0      1.9      2.0      2.0      2.0      9.9
   Forces personnel..................................
  Exclusion of military disability benefits..........  .......  .......  .......  .......  .......      0.1      0.1      0.1      0.1      0.1      0.4
International Affairs
  Exclusion of income earned abroad by U.S. citizens.  .......  .......  .......  .......  .......      2.4      2.6      2.8      3.0      3.3     14.1
  Exclusion of certain allowances for Federal          .......  .......  .......  .......  .......      0.2      0.2      0.3      0.3      0.3      1.3
   employees abroad..................................
  Exclusion of income of foreign sales corporations        2.7      2.9      3.1      3.3      3.6  .......  .......  .......  .......  .......     15.6
   (FSCs)............................................
  Deferral of active income of controlled foreign          3.4      3.7      4.0      4.2      4.5  .......  .......  .......  .......  .......     19.8
   corporations......................................
  Inventory property sales source rule exception.....      4.0      4.2      4.4      4.6      4.8  .......  .......  .......  .......  .......     22.0
  Deferral of certain financing income...............      0.5      0.9      0.4  .......  .......  .......  .......  .......  .......  .......      1.8
General Science, Space, and Technology
  Tax credit for qualified research expenditures.....  .......      3.0      6.8      3.7      3.8  .......  .......  .......  .......  .......     17.3
  Expensing of research and experimental expenditures      2.9      2.8      2.9      3.1      3.2  .......  .......  .......  .......  .......     14.9
Energy
  Expensing of exploration and development costs:
    Oil and gas......................................      0.4      0.5      0.5      0.5      0.5    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      2.4
    Other fuels......................................    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1
  Excess of percentage over cost depletion:
    Oil and gas......................................      0.5      0.5      0.5      0.5      0.5      0.2      0.2      0.2      0.2      0.2      3.5
    Other fuels......................................      0.2      0.2      0.2      0.2      0.2      0.1      0.1      0.1      0.1      0.1      1.5
  Tax credit for enhanced oil recovery costs.........      0.1      0.1      0.1      0.1      0.1    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.3
  Tax credit for production of non-conventional fuels      1.1      1.1      1.2      1.2      1.2      0.2      0.3      0.3      0.3      0.3      7.1
  Tax credits for alcohol fuels (\2\)................    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)  .......  .......  .......  .......  .......    (\1\)
  Exclusion of interest on State and local government    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1      0.1      0.1      0.1      0.1      0.6
   industrial development bonds for energy production
   facilities........................................
  Exclusion of energy conservation subsidies provided  .......  .......  .......  .......  .......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.2
   by public utilities...............................
  Tax credit for investments in solar and geothermal     (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.3
   energy facilities.................................
  Tax credit for electricity production from wind,       (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1      0.1      0.1      0.1      0.1      0.4
   biomass, and poultry waste........................
Natural Resources and Environment
  Expensing of exploration and development costs,        (\1\)      0.1      0.1      0.1      0.1    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.3
   nonfuel minerals..................................
  Excess of percentage over cost depletion, nonfuel        0.2      0.2      0.2      0.2      0.2      0.1      0.1      0.1      0.1      0.1      1.5
   minerals..........................................
  Expensing of multiperiod timber-growing costs......      0.1      0.2      0.2      0.2      0.2    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.9
  Exclusion of interest on State and local government      0.1      0.1      0.1      0.1      0.1      0.3      0.3      0.3      0.3      0.3      2.4
   sewage, water, and hazardous waste facilities
   bonds.............................................
  Special rules for mining reclamation reserves......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.2
  Special tax rate for nuclear decommissioning             0.1      0.1      0.1      0.2      0.2  .......  .......  .......  .......  .......      0.8
   reserve fund......................................
  Exclusion of contributions in aid of construction      (\1\)    (\1\)    (\1\)    (\1\)    (\1\)  .......  .......  .......  .......  .......      0.1
   for water and sewer utilities.....................
Agriculture
  Expensing of soil and water conservation               (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.2
   expenditures......................................
  Expensing of fertilizer and soil conditioner costs.    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1      0.1      0.1      0.1      0.3
  Expensing of the costs of raising dairy and            (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.2      0.2      0.2      0.2      0.2      0.9
   breeding cattle...................................
  Exclusion of cost-sharing payments.................    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1
  Exclusion of cancellation of indebtedness income of  .......  .......  .......  .......  .......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.2
   farmers...........................................
  Cash accounting for agriculture....................    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.5      0.6      0.6      0.6      0.6      3.0
  Income averaging for farmers.......................  .......  .......  .......  .......  .......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1
  Five-year carryback period for net operating losses    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1      0.1    (\1\)    (\1\)    (\1\)      0.3
   attributable to farming...........................
Commerce and Housing
  Financial institutions:
    Exemption of credit union income.................      0.8      0.9      0.9      0.9      1.0  .......  .......  .......  .......  .......      4.5
  Insurance companies:
    Exclusion of investment income on life insurance       1.3      1.3      1.4      1.4      1.5     22.9     23.6     24.3     25.1     25.9    128.7
     and annuity contracts...........................
    Small life insurance company taxable income            0.1      0.1      0.1      0.1      0.1  .......  .......  .......  .......  .......      0.6
     adjustment......................................
    Special treatment of life insurance company            1.1      1.2      1.2      1.3      1.3  .......  .......  .......  .......  .......      6.1
     reserves........................................
    Deduction of unpaid property loss reserves for         2.8      2.9      2.9      3.0      3.1  .......  .......  .......  .......  .......     14.7
     property and casualty insurance companies.......
    Special deduction for Blue Cross and Blue Shield       0.1      0.1      0.1      0.1      0.1  .......  .......  .......  .......  .......      0.6
     companies.......................................
  Housing:
    Deduction for mortgage interest on owner-occupied  .......  .......  .......  .......  .......     55.2     57.7     60.2     62.8     65.5    301.4
     residences......................................
    Deduction for property taxes on owner-occupied     .......  .......  .......  .......  .......     18.9     19.6     20.3     20.9     21.6    101.3
     residences......................................
    Exclusion of capital gains on sales of principal   .......  .......  .......  .......  .......     12.9     12.9     13.0     13.1     13.2     65.1
     residences......................................
    Exclusion of interest on State and local               0.2      0.2      0.2      0.2      0.3      0.6      0.6      0.6      0.6      0.6      4.3
     government bonds for owner-occupied housing.....
    Exclusion of interest on State and local               0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.9
     government bonds for rental housing.............
    Depreciaiton of rental housing in excess of            0.2      0.2      0.2      0.2      0.2      1.5      1.5      1.6      1.7      1.9      9.2
     alternative depreciation system.................
    Tax credit for low-income housing................      1.3      1.4      1.4      1.4      1.4      2.5      2.6      2.6      2.7      2.7     20.0
    Tax credit for first-time homebuyers in the        .......  .......  .......  .......  .......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1
     District of Columbia............................
    Tax credit for rehabilitation of historic              0.3      0.4      0.4      0.4      0.4      0.1      0.1      0.1      0.1      0.1      2.3
     structures......................................
  Other business and commerce:
    Reduced rates of tax on long-term capital gains..  .......  .......  .......  .......  .......     36.0     37.8     38.9     40.1     41.8    194.6
    Exclusion of capital gains at death..............  .......  .......  .......  .......  .......     23.7     25.2     26.9     28.2     32.1    136.1
    Carryover basis of capital gains on gifts........  .......  .......  .......  .......  .......      2.3      2.5      2.7      3.0      3.3     13.8
    Deferral of gain on non-dealer installment sales.      0.2      0.2      0.2      0.2      0.2      0.3      0.3      0.3      0.3      0.3      2.5
    Deferral of gain on like-kind exchanges..........      1.0      1.1      1.2      1.2      1.3      0.4      0.4      0.4      0.4      0.4      7.8
    Deferral of gain on involuntary conversions        .......  .......  .......  .......  .......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1
     resulting from Presidentially-declared disasters
    Depreciation of buildings other than rental            1.5      1.2      1.2      1.1      0.9      0.7      0.5      0.5      0.4      0.3      8.3
     housing in excess of alternative depreciation
     system..........................................
    Depreciation of equipment in excess of                24.9     24.3     23.7     23.3     22.8      6.8      6.6      6.2      5.9      5.6    150.2
     alternative depreciation system.................
    Expensing of depreciable business property.......      0.2      0.2      0.2      0.1      0.1      0.5      0.6      0.6      0.4      0.2      3.1
    Amortization of business startup costs...........    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.3      0.3      0.4      0.4      0.4      1.8
    Reduced rates on first $10,000,000 of corporate        4.3      4.2      4.4      4.5      4.6  .......  .......  .......  .......  .......     22.0
     taxable income..................................
    Permanent exemption from imputed interest rules..    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.2      0.2      0.2      0.2      0.3      1.2
    Expensing of magazine circulation expenditures...    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.2
    Special rules for magazine, paperback book, and      (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1
     record returns..................................
    Completed contract rules.........................      0.2      0.2      0.2      0.2      0.2    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      1.1
    Cash accounting, other than agriculture..........    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1      0.1      0.1      0.1      0.1      0.6
    Exclusion of interest on State and local               0.1      0.1      0.1      0.1      0.1      0.2      0.2      0.2      0.2      0.2      1.6
     government small-issue industrial development
     bonds...........................................
    Exception from net operating loss limitations for      0.5      0.5      0.5      0.5      0.5  .......  .......  .......  .......  .......      2.5
     corporations in bankruptcy proceedings..........
    Tax credit for employer-paid FICA taxes on tips..      0.1      0.1      0.1      0.1      0.1      0.2      0.2      0.2      0.2      0.2      1.8
Transportation
  Deferral of tax on capital construction funds of         0.1      0.1      0.1      0.1      0.1  .......  .......  .......  .......  .......      0.5
   shipping companies................................
  Exclusion of employer-paid transportation benefits.  .......  .......  .......  .......  .......      3.6      3.6      3.7      3.7      3.8     18.4
  Exclusion of interest on State and local government    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.4
   bonds for high-speed rail.........................
Community and Regional Development
  Empowerment zone tax incentives....................      0.1      0.1      0.1      0.1      0.1      0.1      0.2      0.2      0.1      0.1      1.2
  District of Columbia tax incentives................      0.1      0.1      0.1      0.1      0.1    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.4
  Indian reservation tax incentives..................      0.1      0.1      0.1      0.1    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.4
  Expensing of redevelopment costs in certain            (\1\)      0.1      0.1    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.3
   environmentally contaminated areas
   (``Brownfields'').................................
  Tax credit for rehabilitation of structures, other     (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1
   than historic structures..........................
  Exclusion of interest on State and local government      0.2      0.2      0.2      0.2      0.2      0.4      0.4      0.4      0.4      0.4      2.9
   bonds for private airports, docks, and mass-
   commuting facilities..............................
Education, Training, Employment, and Social Services
  Education and training:
    Tax credits for tuition for post-secondary         .......  .......  .......  .......  .......      5.4      5.4      5.5      5.6      5.6     27.5
     education.......................................
    Deduction for interest on student loans..........  .......  .......  .......  .......  .......      0.3      0.4      0.4      0.4      0.4      1.8
    Exclusion of earnings of trust accounts for        .......  .......  .......  .......  .......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.2
     higher education (``education IRAs'')...........
    Exclusion of interest on educational saving bonds  .......  .......  .......  .......  .......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1
    Deferral of tax on earnings of qualified State     .......  .......  .......  .......  .......      0.1      0.1      0.1      0.2      0.2      0.7
     tution programs.................................
    Exclusion of scholarship and fellowship income...  .......  .......  .......  .......  .......      1.1      1.2      1.3      1.4      1.5      6.5
    Exclusion of employer-provided education           .......  .......  .......  .......  .......      0.3      0.4      0.1  .......  .......      0.8
     assistance benefits.............................
    Parental personal exemption for students age 19    .......  .......  .......  .......  .......      0.7      0.8      0.8      0.8      0.8      3.9
     to 23...........................................
    Exclusion of interest on State and local               0.1      0.1      0.1      0.1      0.1      0.2      0.2      0.2      0.2      0.2      1.6
     government student loan bonds...................
    Exclusion of interest on State and local               0.2      0.2      0.2      0.2      0.2      0.5      0.5      0.5      0.5      0.5      3.7
     government bonds for private nonprofit
     educational facilities..........................
    Tax credit for holders of qualified zone academy       0.1      0.1      0.1      0.1      0.1  .......  .......  .......  .......  .......      0.3
     bonds...........................................
    Deduction for charitable contributions to              0.9      1.0      1.0      1.1      1.2      3.9      4.3      4.6      4.9      5.2     28.2
     educational institutions........................
  Employment:
    Exclusion of employee meals and lodging (other     .......  .......  .......  .......  .......      0.8      0.8      0.8      0.9      0.9      4.2
     than military)..................................
    Exclusion of benefits provided under cafeteria     .......  .......  .......  .......  .......      6.9      7.3      7.9      8.4      9.0     39.5
     plans (\3\).....................................
    Exclusion of housing allowances for ministers....  .......  .......  .......  .......  .......      0.4      0.4      0.4      0.4      0.4      2.0
    Exclusion of miscellaneous fringe benefits.......  .......  .......  .......  .......  .......      6.5      6.9      7.3      7.8      8.2     36.7
    Exclusion of employee awards.....................  .......  .......  .......  .......  .......      0.1      0.1      0.1      0.1      0.1      0.7
    Exclusion of income earned by voluntary            .......  .......  .......  .......  .......      1.4      1.5      1.6      1.7      1.7      7.9
     employees' beneficiary associations.............
    Special tax provisions for employee stock              0.8      0.8      0.8      0.9      0.9      0.2      0.2      0.2      0.2      0.3      5.3
     ownership plans (ESOPs).........................
    Work opportunity tax credit......................      0.4      0.4      0.3      0.1      0.1      0.1      0.1      0.1    (\1\)    (\1\)      1.4
    Welfare-to-work tax credit.......................      0.1      0.1      0.1    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.4
  Social services:
    Tax credit for children under age 17 (\4\).......  .......  .......  .......  .......  .......     17.1     17.1     17.0     16.9     16.4     84.5
    Tax credit for child and dependent care expenses.  .......  .......  .......  .......  .......      2.2      2.2      2.2      2.2      2.1     11.0
    Exclusion of employer-provided child care (\5\)..  .......  .......  .......  .......  .......      0.4      0.4      0.5      0.5      0.5      2.4
    Exclusion of certain foster care payments........  .......  .......  .......  .......  .......      0.5      0.5      0.5      0.6      0.6      2.7
    Adoption credit and employee adoption benefits     .......  .......  .......  .......  .......      0.2      0.3      0.2      0.1      0.1      0.8
     exclusion.......................................
    Deduction for charitable contributions, other          1.5      1.6      1.8      1.9      2.1     21.4     23.1     24.8     26.6     28.4    133.1
     than for education and health...................
    Tax credit for disabled access expenditures......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1      0.1      0.1      0.1      0.1      0.4
Health
  Exclusion of employer contributions for health       .......  .......  .......  .......  .......     58.0     61.1     64.4     68.2     72.5    324.1
   care, health insurance premiums, and long-term
   care insurance premiums (\6\).....................
  Exclusion of medical care and CHAMPUS/TRICARE        .......  .......  .......  .......  .......      1.6      1.6      1.6      1.6      1.6      8.0
   medical insurance for military dependents,
   retirees, and retiree dependents..................
  Deduction for health insurance premiums and long-    .......  .......  .......  .......  .......      1.2      1.3      1.6      2.4      2.8      9.3
   term care insurance premiums by the self-employed.
  Deduction for medical expenses and long-term care    .......  .......  .......  .......  .......      4.4      4.8      5.1      5.4      5.8     25.4
   expenses..........................................
  Exclusion of workers' compensation benefits          .......  .......  .......  .......  .......      4.5      4.7      4.9      5.1      5.4     24.6
   (medical benefits)................................
  Medical savings accounts...........................  .......  .......  .......  .......  .......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1
  Exclusion of interest on State and local government      0.3      0.3      0.3      0.3      0.3      0.8      0.8      0.9      0.9      0.9      5.9
   bonds for private nonprofit hospital facilities...
  Deduction for charitable contributions to health         0.8      0.8      0.9      1.0      1.1      2.7      2.9      3.1      3.4      3.6     20.4
   organizations.....................................
  Tax credit for orphan drug research................      0.1      0.1      0.1      0.1      0.1  .......  .......  .......  .......  .......      0.5
Medicare
  Exclusion of untaxed Medicare benefits:
    Hospital insurance...............................  .......  .......  .......  .......  .......     16.1     16.8     17.7     18.8     20.3     89.7
    Supplementary medical insurance..................  .......  .......  .......  .......  .......      8.8      9.8     11.1     12.5     14.1     56.3
Income Security
  Exclusion of workers' compensation benefits          .......  .......  .......  .......  .......      5.0      5.3      5.5      5.8      6.0     27.6
   (disability and survivors payments)...............
  Exclusion of special benefits for disabled coal      .......  .......  .......  .......  .......      0.1      0.1      0.1      0.1      0.1      0.4
   miners............................................
  Exclusion of cash public assistance benefits.......  .......  .......  .......  .......  .......      0.7      0.7      0.7      0.8      0.8      3.7
  Net exclusion of pension contributions and
   earnings:
    Employer plans...................................  .......  .......  .......  .......  .......     76.0     80.7     83.6     86.5     89.3    416.0
    Individual retirement plans......................  .......  .......  .......  .......  .......     12.2     12.7     14.0     15.3     16.5     70.7
    Keogh plans......................................  .......  .......  .......  .......  .......      5.0      5.1      5.2      5.3      5.4     26.1
  Exclusion of other employee benefits:
    Premiums on group term life insurance............  .......  .......  .......  .......  .......      2.0      2.1      2.2      2.3      2.4     11.0
    Premiums on accident and disability insurance....  .......  .......  .......  .......  .......      0.2      0.2      0.2      0.2      0.2      1.0
  Additional standard deduction for the blind and the  .......  .......  .......  .......  .......      2.0      2.1      2.2      2.2      2.3     10.8
   elderly...........................................
  Tax credit for the elderly and disabled............  .......  .......  .......  .......  .......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1
  Deduction for casualty and theft losses............  .......  .......  .......  .......  .......      0.2      0.2      0.3      0.3      0.3      1.3
  Earned income credit (EIC) (\7\)...................  .......  .......  .......  .......  .......      4.0      4.1      4.1      4.4      4.4     21.1
Social Security and Railroad Retirement
  Exclusion of untaxed social security and railroad    .......  .......  .......  .......  .......     24.4     25.4     26.4     27.4     28.3    131.9
   retirement benefits...............................
Veterans' Benefits and Services
  Exclusion of veterans' disability compensation.....  .......  .......  .......  .......  .......      2.1      2.2      2.3      2.4      2.4     11.4
  Exclusion of veterans' pensions....................  .......  .......  .......  .......  .......      0.1      0.1      0.1      0.1      0.1      0.6
  Exclusion of veterans' readjustment benefits.......  .......  .......  .......  .......  .......      0.1      0.1      0.1      0.1      0.1      0.6
  Exclusion of interest on State and local government    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.2
   bonds for veterans' housing.......................
General Purpose Fiscal Assistance
  Exclusion of interest on public purpose State and        5.1      5.3      5.4      5.6      5.8     13.0     13.6     14.0     14.4     14.9     96.9
   local government debt.............................
  Deduction of nonbusiness State and local government  .......  .......  .......  .......  .......     35.5     36.8     38.1     39.2     40.4    190.0
   income and personal property taxes................
  Tax credit for Puerto Rico and possession income,        3.8      4.0      3.6      3.2      3.0  .......  .......  .......  .......  .......     17.6
   and Puerto Rico economic activity.................
Interest
  Deferral of interest on savings bonds..............  .......  .......  .......  .......  .......      1.2      1.2      1.2      1.2      1.2      6.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Positive tax expenditure of less than $50 million.
\2\ In addition, the exemption from excise tax for alcohol fuels results in a reduction in excise tax receipts, net of income tax effect, of $0.5
  billion per year in fiscal years 2000 through 2004.
\3\ Estimate includes amounts of employer-provided health insurance purchased through cafeteria plans and employer-provided child care  purchased
  dependent care flexible spending accounts. These amounts are also included in other line items in this table.
\4\ The figures in the table show the effect of the child credit on receipts. The increase in outlays is: $0.8 billion in 2000, $0.8 billion in 2001,
  $0.8 billion in 2002, $0.8 billion in 2003, and $0.8 billion in 2004.
\5\ Estimate includes employer-provided child care purchased through dependent care flexible spending accounts.
\6\ Estimate includes employer-provided health insurance purchased through cafeteria plans.
\7\ The figures in the table show the effect of the earned income credit on receipts. The increase in outlays is: $25.8 billion in 2000, $26.2  billion
  in 2001, $27.0 billion in 2002, $27.4 billion in 2003, and $28.1 billion in 2004.

Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.


 Table 2.--Distribution by Income Class of All Returns, Taxable Returns, Itemized Returns,  and Tax Liability at
                               1999 Rates and 1999 Law and 1999 Income Levels \1\
                          [Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
                                              All returns \3\      Taxable          Itemized
        Income class [thousands] \2\                               returns          returns       Tax Liability
----------------------------------------------------------------------------------------------------------------
Below $10...................................           22,371            1,463              460          -$8,300
$10 to $20..................................           26,314            8,634            1,236           -8,519
$20 to $30..................................           20,301           13,052            2,356           18,989
$30 to $40..................................           15,902           13,532            3,710           34,291
$40 to $50..................................           13,082           12,232            4,342           46,655
$50 to $75..................................           19,829           19,533           10,219          116,354
$75 to $100.................................           10,042            9,993            7,268          102,779
$100 to $200................................            8,461            8,449            7,222          173,919
$200 and over...............................            2,527            2,524            2,309          319,360
                                             -------------------------------------------------------------------
    Total...................................          138,829           89,410           39,121         $795,530
----------------------------------------------------------------------------------------------------------------
\1\ Tax law as in effect on January 1, 1999, is applied to the 1999 level and sources of income and their
  distribution among taxpayers.
\2\ The income concept used to place tax returns into classes is adjusted gross income (AGI) plus: (a) tax-
  exempt interest, (b) employer  contributions for health plans and life insurance, (c) employer share of FICA
  tax, (d) workers' compensation, (e) nontaxable Social Security benefits, (f) insurance value of Medicare
  benefits, (g) alternative minimum tax preference items, and (h) excluded income of U.S. citizens living
  abroad.
\3\ Includes filing and nonfiling units. Filing units include all taxable and nontaxable returns. Nonfiling
  units include individuals with  income that is exempt from Federal income taxation (e.g., transfer payments,
  interest from tax-exempt bonds, etc.). Excludes individuals  who are dependents of other taxpayers and
  taxpayers with negative income.

Note.--Details may not add to totals due to rounding.

Source: Joint Committee on Taxation.


  Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items,  at 1999 Rates and 1999
                                                Income Levels \1\
                          [Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
                                                    Medical deduction \3\           Real estate tax deduction
        Income class [thousands] \2\         -------------------------------------------------------------------
                                                  Returns           Amount          Returns           Amount
----------------------------------------------------------------------------------------------------------------
Below $10...................................               14               $3               38               $1
$10 to $20..................................              203               64              461               61
$20 to $30..................................              568              210            1,270              211
$30 to $40..................................              868              442            2,738              562
$40 to $50..................................              832              478            3,440              922
$50 to $75..................................            1,413            1,134            8,778            3,062
$75 to $100.................................              547              785            6,393            3,486
$100 to $200................................              271              768            6,481            5,556
$200 and over...............................               32              370            1,976            4,490
                                             -------------------------------------------------------------------
    Total...................................            4,748           $4,254           31,576          $18,351
----------------------------------------------------------------------------------------------------------------
Footnotes at end of table.


  Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items,  at 1999 Rates and 1999
                                          Income Levels \1\--Continued
                          [Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
                                                 State and local income and         Charitable contributions
                                               personal property tax deduction              deduction
        Income class [thousands] \2\         -------------------------------------------------------------------
                                                  Returns           Amount          Returns           Amount
----------------------------------------------------------------------------------------------------------------
Below $10...................................               32            (\6\)              108               $8
$10 to $20..................................              548              $15              941              128
$20 to $30..................................            1,566               97            2,138              370
$30 to $40..................................            3,057              396            3,271              673
$40 to $50..................................            3,875              917            3,922            1,131
$50 to $75..................................            9,391            3,539            9,221            3,910
$75 to $100.................................            6,763            4,764            5,735            3,828
$100 to $200................................            6,444            8,725            5,353            5,453
$200 and over...............................            2,071           16,016            1,758           10,993
                                             -------------------------------------------------------------------
    Total...................................           33,747          $34,468           32,447          $26,494
----------------------------------------------------------------------------------------------------------------
Footnotes at end of table.


  Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items,  at 1999 Rates and 1999
                                          Income Levels \1\--Continued
                          [Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
                                                      Child care credit             Earned income credit \4\
        Income class [thousands] \2\         -------------------------------------------------------------------
                                                  Returns           Amount          Returns           Amount
----------------------------------------------------------------------------------------------------------------
Below $10...................................                3            (\6\)            6,365           $7,677
$10 to $20..................................              295              $87            7,149           15,596
$20 to $30..................................              869              328            5,036            5,831
$30 to $40..................................              749              297              786              615
$40 to $50..................................              808              304               98               80
$50 to $75..................................            1,309              531               14               19
$75 to $100.................................              779              350            (\5\)            (\6\)
$100 to $200................................              563              252               --               --
$200 and over...............................              105               52               --               --
                                             -------------------------------------------------------------------
    Total...................................            5,480           $2,200           19,449          $29,818
----------------------------------------------------------------------------------------------------------------
Footnotes at end of table.


  Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items,  at 1999 Rates and 1999
                                          Income Levels \1\--Continued
                          [Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
                                                 Untaxed Social Security and           Child tax credit \4\
                                                Railroad Retirement benefits   ---------------------------------
        Income class [thousands] \2\         ----------------------------------
                                                  Returns           Amount          Returns           Amount
----------------------------------------------------------------------------------------------------------------
Below $10...................................              247              $38               84              $23
$10 to $20..................................            4,861            1,911            2,054              659
$20 to $30..................................            4,585            4,692            4,174            2,363
$30 to $40..................................            4,100            5,252            3,357            2,655
$40 to $50..................................            3,245            5,161            3,163            2,691
$50 to $75..................................            4,631            5,270            5,792            5,005
$75 to $100.................................            1,902              663            3,349            2,926
$100 to $200................................            1,474              346            1,927            1,412
$200 and over...............................              433              138               --               --
                                             -------------------------------------------------------------------
    Total...................................           25,479          $23,471           23,901          $17,733
----------------------------------------------------------------------------------------------------------------
Footnotes at end of table.


  Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items,  at 1999 Rates and 1999
                                          Income Levels \1\--Continued
                          [Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
                                                                                   Mortgage interest deduction
                         Income class [thousands] \2\                          ---------------------------------
                                                                                    Returns           Amount
----------------------------------------------------------------------------------------------------------------
Below $10.....................................................................               24               $2
$10 to $20....................................................................              414              166
$20 to $30....................................................................            1,265              537
$30 to $40....................................................................            2,656            1,623
$40 to $50....................................................................            3,394            2,825
$50 to $75....................................................................            8,540            9,449
$75 to $100...................................................................            6,211           11,106
$100 to $200..................................................................            6,048           16,697
$200 and over.................................................................            1,773           11,014
                                                                               ---------------------------------
    Total.....................................................................           30,324          $53,419
----------------------------------------------------------------------------------------------------------------
Footnotes for Table 3:

\1\ Excludes individuals who are dependents of other taxpayers and taxpayers with negative income.
\2\ The income concept used to place tax returns into classes is adjusted gross income (AGI) plus: (a) tax-
  exempt interest, (b) employer  contributions for health plans and life insurance, (c) employer share of FICA
  tax, (d) workers' compensation, (e) nontaxable Social Security  benefits, (f) insurance value of Medicare
  benefits, (g) alternative minimum tax preference items, and (h) excluded income of U.S. citizens  living
  abroad.
\3\ Tax expenditure estimate does not include revenue losses attributable to deductions for long-term care and
  long-term care insurance  premiums.
\4\ Includes the refundable portion.
\5\ Less than 500 returns.
\6\ Less than $500,000.

Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.


                                
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