[JPRT 109-2-06]
[From the U.S. Government Publishing Office]
JCS-2-06
[JOINT COMMITTEE PRINT]
ESTIMATES OF FEDERAL TAX
EXPENDITURES FOR
FISCAL YEARS 2006-2010
Prepared for the
HOUSE COMMITTEE ON WAYS AND MEANS
and the
SENATE COMMITTEE ON FINANCE
__________
By the Staff of the
JOINT COMMITTEE ON TAXATION
[GRAPHIC] [TIFF OMITTED] TONGRESS.#13
APRIL 25, 2006
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U.S. GOVERNMENT PRINTING OFFICE
26-853 WASHINGTON : 2006
JOINT COMMITTEE ON TAXATION
109th Congress, 2d Session
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SENATE HOUSE
CHARLES E. GRASSLEY, Iowa, WILLIAM M. THOMAS, California,
Chairman Vice Chairman
ORRIN G. HATCH, Utah E. CLAY SHAW, Jr., Florida
TRENT LOTT, Mississippi NANCY L. JOHNSON, Connecticut
MAX BAUCUS, Montana CHARLES B. RANGEL, New York
JOHN D. ROCKEFELLER IV, West FORTNEY PETE STARK, California
Virginia
C O N T E N T S
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Page
Introduction..................................................... 1
I. The Concept of Tax Expenditures...................................2
II. Measurement of Tax Expenditures..................................26
III.Tax Expenditure Estimates........................................29
Table 1. Tax Expenditure Estimates by Budget Function,
Fiscal Years 2006-2010............................... 30
Table 2. Distribution of All Returns, Taxable Returns,
Itemized Returns, and Tax Liability by Income Class.. 43
Table 3. Distribution of Selected Individual Tax
Expenditures by Income Class......................... 44
INTRODUCTION
This report \1\ on tax expenditures for fiscal years 2006-
2010 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 2006-
2010 (JCS-2-06), April 25, 2006.
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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 2005-2011 in the
Administration's budgetary statement of February 2006.\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 (JCS-28-72), June 1, 1973 (JCS-20-73),
July 8, 1975 (JCS-11-75), March 15, 1976 (JCS-5-76), March 15, 1977
(JCS-10-77), March 14, 1978 (JCS-9-78), March 15, 1979 (JCS-9-79),
March 6, 1980 (JCS-8-80), March 16, 1981 (JCS-7-81), March 8, 1982
(JCS-4-82), March 7, 1983 (JCS-4-83), November 9, 1984 (JCS-39-84),
April 12, 1985 (JCS-8-85), March 1, 1986 (JCS-7-86), February 27, 1987
(JCS-3-87), March 8, 1988 (JCS-3-88), February 28, 1989 (JCS-4-89),
March 9, 1990 (JCS-7-90), March 11, 1991 (JCS-4-91), April 24, 1992
(JCS-8-92), April 22, 1993 (JCS-6-93), November 9, 1994 (JCS-6-94),
September 1, 1995 (JCS-21-95), November 26, 1996 (JCS-11-96), December
15, 1997 (JCS-22-97), December 14, 1998 (JCS-7-98), December 22, 1999
(JCS-13-99), April 6, 2001 (JCS-1-01), January 17, 2002 (JCS-1-02),
December 19, 2002 (JCS-5-02), December 22, 2003 (JCS-8-03), and January
12, 2005 (JCS-1-05).
\3\ Office of Management and Budget, ``Tax Expenditures,'' Budget
of the United States Government: Analytical Perspectives, Fiscal Year
2007, February 6, 2006, pp. 285-328.
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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 March 31, 2006. 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. The tax expenditure estimates
in this report are based on the January 2006 Congressional
Budget Office revenue baseline and Joint Committee staff
projections of the gross income, deductions, and expenditures
of individuals and corporations for calendar years 2005-2010.
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 2006-2010 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 (Pub.
L. No. 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 similar to those direct
spending programs that are available as entitlements to those
who meet the statutory criteria established for the programs.
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 determination of whether a provision is a tax
expenditure is made on the basis of a broad concept of income
that is larger in scope than ``income'' as defined under
general U.S. income tax principles. 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 2006-2010. 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 mandate, 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.\5\ 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 in this report.\6\
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\5\ The Federal income tax on individuals also applies to estates
and trusts, which are subject to a separate income tax rate schedule
(Section 1(c) of the Internal Revenue Code of 1986, the ``Code'').
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.
\6\ Other analysts have explored applying the concept of tax
expenditures to 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. Prior to 2003, the
President's budget contained a section that reviewed and tabulated
estate and gift tax provisions that the Treasury considered tax
expenditures. The Joint Committee staff considers estate and gift
provisions as being outside of the normal income tax structure and thus
omits them from its lists of tax expenditures.
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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 two-
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.
The Joint Committee staff views the personal exemptions and
the standard deduction as defining the zero-rate bracket that
is a part of normal tax law. An itemized deduction that is not
necessary for the generation of income is classified as a tax
expenditure, but only to the extent that it, when added to a
taxpayer's other itemized deductions, exceeds the standard
deduction.
All employee compensation is subject to tax unless the tax
code contains a specific exclusion for the income. Specific
exclusions for employer-provided benefits include the
following: coverage under accident and health plans,\7\
accident and disability insurance, group term life insurance,
educational assistance, tuition reduction benefits,
transportation benefits (parking, van pools, and transit
passes), dependent care assistance, adoption assistance, 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, and de minimis fringe benefits).
Each of these exclusions is classified as a tax expenditure in
this report.
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\7\ Present law contains an exclusion for employer-provided
coverage under accident and health plans (Code sec. 106) 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 generally
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, and income earned on pension assets is not taxed
until distributed. 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 (including the 10-percent additional tax paid on
early withdrawals from pension plans).
Under present law, social security and tier 1 railroad
retirement benefits are partially excluded or fully excluded
from gross income.\8\ Under normal income tax law, retirees
would be entitled to an exclusion for only the portion of the
retirement benefits that represents a return of the payroll
taxes that they paid during their working years. Thus, the
exclusion of social security and railroad retirement benefits
in excess of payroll tax payments is classified as a tax
expenditure.
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\8\ For taxpayers with modified adjusted gross incomes above
certain levels, up to 85 percent of social security and tier 1 railroad
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, the value of Medicare Part B
insurance generally is greater than the Part B premium that
enrollees must pay, and the value of Medicare Part D
(prescription drug) insurance generally is greater than the
Part D 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, as is the
exclusion of the value of Medicare Part B insurance in excess
of Part B premiums, and the exclusion of the value of Part D
insurance in excess of Part D premiums.
Public assistance benefits are excluded from gross income
by statute 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 benefits and Temporary Assistance for Needy Families
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.\9\ 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.\10\ 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.
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\9\ 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. However, a taxpayer-by-taxpayer accounting of
imputed income would be necessary for a tax expenditure estimate.
\10\ 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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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, exchange,
gift, or transfer at death. 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, exchange, gift, or transfer at death), 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.
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.
Under the Joint Committee staff view of normal tax law,
compensatory stock options would be subject to regular income
tax at the time the options are exercised and employers would
receive a corresponding tax deduction.\11\ The employee's
income would be equal to the difference between the purchase
price of the stock and the market price on the day the option
is exercised. Present law provides for special tax treatment
for incentive stock options and options acquired under employee
stock purchase plans. When certain requirements are satisfied,
(1) the income that is received at the time the option is
exercised is excluded for purposes of the regular income tax
but, in the case of an incentive stock option, included for
purposes of the alternative minimum tax, (2) the gain from any
subsequent sale of the stock is taxed as a capital gain, and
(3) the employer does not receive a tax deduction with respect
to the option. The special tax treatment provided to the
employee is viewed as a tax expenditure by the Joint Committee
staff, and an estimate of this tax expenditure is contained in
Table 1. However, it should be noted that the revenue loss from
the special tax treatment provided to the employee is
accompanied by a significant revenue gain from the denial of
the deduction to the employer.
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\11\ If the option has a readily ascertainable fair market value,
normal law would tax the option at the time it is granted and the
employer would be entitled to a deduction at that time.
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The individual 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 the deduction for State and local income
taxes (for those taxpayers subject to the AMT) by not allowing
the deductions 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
individual 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.
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 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 Joint Committee staff assumes that normal income tax
law would provide for the carryback and carryforward of net
operating losses. The staff also assumes that the general
limits on the number of years that such losses may be carried
back or forward were chosen for reasons of administrative
convenience and compliance concerns and may be assumed to
represent normal income tax law. Exceptions to the general
limits on carrybacks and carryforwards are viewed as 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.
Exceptions to the corporate alternative minimum tax are not
viewed as tax expenditures because the effects of the AMT
exceptions are already incorporated in the estimates of related
tax expenditures.\12\
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\12\ See discussion of individual AMT on page 6.
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Certain income of pass-through entities is exempt from the
corporate income tax. The income of sole proprietorships, S
corporations, most partnerships, and other entities (such as
regulated investment companies and real estate investment
trusts) 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.
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, as is the exclusion of income granted to holders
of tax-exempt financing issued by charities.
Recent Legislation
H.R. 241 (Pub. L. No. 109-1), enacted on January 7, 2005,
provided that cash contributions made in January 2005 for the
relief of the December 26, 2004, Indian Ocean tsunami victims
may be treated as if such contributions were made on December
31, 2004, and not in January 2005. In Table 1, the effects of
this provision are reflected in the tax expenditure estimate
for ``Deduction for charitable contributions, other than for
education and health.''
H.R. 1134 (Pub. L. No. 109-7), enacted on April 25, 2005,
modified section 139 to provide an exclusion for certain
disaster mitigation payments, effective for amounts received
before, on, or after the date of enactment. Under prior law,
the section 139 exclusion was limited to disaster relief
payments made to individuals for the reimbursement of living
expenses, funeral expenses, transportation expenses, and
residential repair or replacement expenses in connection with a
qualified disaster.\13\ The exclusion of disaster relief
payments is not viewed as a tax expenditure by the Joint
Committee staff because normal law is assumed to include an
exclusion for payments that promote the general welfare by
providing relief to disaster victims. The new exclusion for
disaster mitigation payments is viewed as a tax expenditure
because the payments are for the purpose of disaster
preparation and the recipients are not disaster victims. This
new tax expenditure is not listed in Table 1 because the
estimated revenue loss is below the de minimis amount.
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\13\ Prior to the enactment of section 125, payments excludable
under that section were generally excludable under administrative
rulings as payments to promote the general welfare.
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The Safe, Accountable, Flexible, Efficient Transportation
Equity Act: A Legacy for Users (H.R. 3), enacted on August 10,
2005 (Pub. L. No. 109-59), created two new tax expenditures:
--A new income tax credit was provided for the cost of
carrying tax-paid distilled spirits in wholesale inventories
and in control-State bailment warehouses, effective for taxable
years beginning after September 30, 2005.
--The Secretary of Transportation was permitted to allocate
up to $15 billion of private-activity bond authority for
qualified highway or surface freight transfer facilities. In
Table 1, this new bond authority is reflected in the tax
expenditure estimate for ``Exclusion of interest on State and
local government qualified private activity bonds for highway
projects and rail-truck transfer facilities.''
The Energy Tax Incentives Act of 2005 (H.R. 6), enacted on
August 8, 2005 (Pub. L. No. 109-58), created a number of new
tax expenditures, as follows:
--A tax credit was provided for the holders of clean
renewable energy bonds (``CREBs''), which are a new category of
bonds issued to finance capital expenditures incurred by
qualified borrowers for facilities that qualify under section
45. The Secretary of the Treasury may allocate up to $800
million of CREBs to qualified projects. The authority to issue
CREBs expires after December 31, 2007.
--A tax credit was provided for the production of
electricity from qualifying advanced nuclear power facilities.
The credit is equal to 1.8 cents per kilowatt-hour of
electricity produced during the eight-year period starting when
the facility is placed in service. The credit is effective for
electricity produced in taxable years beginning after the date
of enactment. This new tax expenditure is not listed in Table 1
because it is estimated that qualifying advanced nuclear power
facilities will not be placed in service until after fiscal
year 2010.
--Tax credits were provided for investments in qualified
clean coal power generation facilities. The rate of the credit
is 20 percent for qualified investments in integrated
gasification combined cycle (``IGCC'') projects, 15 percent for
investments in other advanced coal-based electricity generation
projects, and 20 percent for investments in certified
gasification projects. The Secretary of the Treasury may
allocate up to $800 million of credits for IGCC projects, up to
$500 million of credits for other advanced coal-based projects,
and up to $350 million of credits for certified gasification
projects. In Table 1, this tax expenditure is listed as ``Tax
credits for investments in clean coal power generation
facilities.''
--Refiners were provided a temporary election to expense up
to 50 percent of the cost of qualified property used in the
refining of liquid fuels. The qualified property must be
constructed pursuant to a binding contract in effect prior to
January 1, 2008, the property must be placed in service before
January 1, 2012, and certain other requirements must be
satisfied. A cooperative organization may elect to pass the
expensing deduction through to its owners.
--Two-year amortization was provided for certain geological
and geophysical costs incurred in connection with oil and gas
exploration. The amortization is effective for costs paid or
incurred in taxable years beginning after the date of
enactment.
--A deduction was provided for expenditures on qualified
energy-efficient commercial building property. The deduction is
effective for property placed in service after December 31,
2005, and prior to January 1, 2008.
--A tax credit was provided for the purchase of qualified
energy efficiency improvements to existing homes. The credit
applies to property placed in service after December 31, 2005,
and prior to January 1, 2008.
--A tax credit was provided for the production of certain
energy-efficient dishwashers, clothes washers, and
refrigerators. The credit applies to appliances produced after
December 31, 2005, and prior to January 1, 2008.
--A tax credit was provided for the purchase of qualified
photovoltaic property and qualified solar water heating
property that is used exclusively for purposes other than
heating swimming pools and hot tubs. The credit applies to
property placed in service after December 31, 2005, and prior
to January 1, 2008. This tax expenditure is not listed in table
1 because the estimated revenue loss is below the de minimis
amount.
--A tax credit was provided for eligible contractors for
the construction of qualified energy-efficient homes. The
credit applies to homes that are substantially completed after
December 31, 2005, and purchased after December 31, 2005, and
prior to January 1, 2008. This tax expenditure is not listed in
table 1 because the estimated revenue loss is below the de
minimis amount.
--Tax credits were provided for alternative technology
vehicles. The tax credit for fuel cell vehicles is equal to a
base amount that depends upon the weight class of the vehicle
and, in the case of automobiles and light trucks, an additional
credit amount that depends upon the rated fuel economy of the
vehicle compared to a base fuel economy. The tax credit for
alternative fuel vehicles applies to vehicles powered by
natural gas, liquefied natural gas, liquefied petroleum gas,
hydrogen, and any liquid that is at least 85 percent methanol,
and is equal to 50 percent of the incremental cost of the
vehicle plus an additional 30 percent if the vehicle meets
certain emissions standards. Mixed fuel vehicles that use a
combination of an alternative fuel and a petroleum-based fuel
are eligible for a reduced credit. The tax credit for hybrid
automobiles, hybrid light trucks, and lean-burn technology
vehicles is equal to a fuel economy credit amount that varies
with the rated fuel economy of the vehicle compared to a 2002
model year standard and a conservation credit based on
estimated lifetime fuel savings. The tax credit for hybrid
motor vehicles weighing more than 8,500 pounds is determined by
the estimated increase in fuel economy and the incremental cost
of the vehicle compared to a comparable vehicle that is powered
solely by a gasoline or diesel engine and comparable in weight,
size, and use of vehicle. All of these credits apply to
vehicles placed in service after December 31, 2005. The tax
credit for fuel cell vehicles expires for vehicles placed in
service after December 31, 2014. The tax credits for
alternative fuel vehicles, hybrid automobiles, hybrid light
trucks, and lean-burn technology vehicles expire for vehicles
placed in service after December 31, 2010. The tax credit for
hybrid motor vehicles weighing more than 8,500 pounds expires
for vehicles placed in service after December 31, 2009. In
Table 1, the revenue effects of all of these credits are
included in the tax expenditure estimate for ``Tax credits for
alternative technology vehicles.''
--A tax credit was provided for the cost of installing
clean-fuel vehicle refueling property to be used in a trade or
business of the taxpayer or installed at the principal
residence of the taxpayer. The credit is effective for property
placed in service after December 31, 2005. The credit expires
for hydrogen refueling property placed in service after
December 31, 2014, and all other refueling property placed in
service after December 31, 2009.
--A temporary five-year carryback period was provided for a
portion of the net operating losses of certain electric utility
companies. The carryback applies to losses arising in taxable
years ending in 2003, 2004, and 2005.
--A tax credit was provided for small agri-biodiesel fuel
producers. The credit is 10 cents per gallon for up to 15
million gallons of agri-biodiesel produced by persons whose
agri-biodiesel production capacity does not exceed 60 million
gallons per year. The credit is effective for agri-biodiesel
produced in taxable years ending after the date of enactment,
and expires for fuel produced and sold by a small agri-
biodiesel producer after December 31, 2008. In Table 1, this
tax credit is reflected in the tax expenditure estimate for
``Tax credits for biodiesel fuels.''
The Energy Tax Incentives Act of 2005 also extended or
modified some existing tax expenditures, as follows:
--Two modifications were made to the rules governing
nuclear decommissioning reserve funds: the repeal of the cost-
of-service requirement for deductible contributions, and the
repeal of the limitation that a fund only accumulate amounts
sufficient to pay for decommissioning costs incurred during the
period that the fund is in existence. Both changes were
effective for taxable years beginning after December 31, 2005.
In Table 1, these changes are reflected in the tax expenditure
estimate for ``Special tax rate for nuclear decommissioning
reserve funds.''
--Section 169 was amended to permit the amortization of
certified pollution control facilities used in connection with
an electric generation plant which is primarily coal fired and
which was not in operation before January 1, 2006. In Table 1,
this provision is reflected in the tax expenditure estimate for
``Amortization of certified pollution control facilities.''
--Small refiner cooperatives were allowed to pass through
to their owners the deduction permitted for the costs paid or
incurred for the purpose of complying with the Highway Diesel
Fuel Sulfur Control Requirements of the Environmental
Protection Agency. The pass-through provision is effective as
if included in the American Jobs Creation Act of 2004. In Table
1, this provision is reflected in the tax expenditure estimate
for ``Tax credit and deduction for small refiners with capital
costs associated with EPA sulfur regulation compliance.''
--A statutory seven-year recovery period and a class life
of 14 years were provided for natural gas gathering pipelines,
and a statutory 15-year recovery period and a class life of 35
years were provided for natural gas distribution lines,
effective for property placed in service after April 11, 2005.
In addition, a 15-year recovery period and a class life of 30
years were provided for certain property used in the
transmission of electricity for sale, effective for property
placed in service after April 11, 2005, but excluding property
subject to a binding contract on or before April 11, 2005. In
Table 1, these changes are reflected in the tax expenditure
estimate for ``Depreciation of equipment in excess of the
alternative depreciation system.''
--The tax credit for the production of non-conventional
fuels was expanded to include coke and coke gas produced at
facilities placed in service before January 1, 1993, or after
June 30, 1998, and before January 1, 2010. The credit applies
to coke and coke gas produced and sold during the period
beginning on the latter of January 1, 2006, or the date the
facility is placed in service, and ending on the date which is
four years after such period began. The tax credit for the
production of non-conventional fuels was also made a part of
the general business credit, effective for taxable years ending
after December 31, 2005.
--Several modifications were made to the tax credits for
electricity produced from certain renewable resources. The tax
credits for electricity produced from wind energy, closed-loop
biomass, open-loop biomass, geothermal, small irrigation power,
landfill gas, and trash combustion facilities, which were
scheduled to expire for facilities placed in service after
December 31, 2005, were extended to include facilities placed
in service through December 31, 2007. The tax credit for
electricity produced from solar facilities was not extended and
expired as scheduled for facilities placed in service after
December 31, 2005. The tax credit for electricity produced from
refined coal facilities was not modified and is scheduled to
expire for facilities placed in service after December 31,
2008. A new tax credit was provided for electricity produced
from certain hydropower facilities that incorporate
improvements, additions to capacity, or new capacity placed in
service after the date of enactment and prior to January 1,
2009. A new tax credit was also provided for certain sales of
Indian coal from qualified facilities, effective for sales
during the period January 1, 2006, through December 31, 2012.
Eligible cooperatives that receive any of these credits may now
elect to pass any portion of the credits through to patrons,
effective for taxable years ending after the date of enactment.
In Table 1, all of these changes are reflected in the tax
expenditure estimate for ``Tax credits for electricity
production from renewable resources.''
--An extension was provided for the tax provision that
allows taxpayers to elect to defer the recognition of gain from
the disposition of electric transmission property to implement
Federal Energy Regulatory Commission restructuring policy. The
election was scheduled to expire for transactions occurring
prior to January 1, 2007, and was extended to include
transactions prior to January 1, 2008.
--An exception was provided for the general rule that tax-
exempt bond-financed prepayments violate the arbitrage
restrictions. The exception applies to prepayments for the
purpose of obtaining a supply of natural gas for service area
customers of a governmental utility. The exception is effective
for bonds issued after the date of enactment. In Table 1, this
change is reflected in the tax expenditure estimate for
``Exclusion of interest on public purpose State and local
government bonds.''
--The definition of an independent oil and gas producer was
modified by increasing the refinery run limitation from 50,000
to 75,000 barrels of crude oil per day. Independent oil and gas
producers are allowed to claim percentage depletion deductions
rather than cost depletion. In Table 1, this change is
reflected in the tax expenditure estimate for ``Excess of
percentage over cost depletion: Oil and gas.''
--The tax credit for solar energy business property was
increased from 10 percent to 30 percent and the credit was
extended to equipment that uses fiber-optic distributed
sunlight to illuminate the inside of a structure, effective for
periods after December 31, 2005, and before January 1, 2008,
for property placed in service in taxable years ending after
December 31, 2005. A tax credit was also provided for the
purchase of qualified fuel cell power plants for businesses and
the purchase of qualifying stationary microturbine power
plants. Telecommunications companies may claim these credits
notwithstanding their status as public utilities. These tax
credits are effective for periods after December 31, 2005, and
before January 1, 2008, for property placed in service in
taxable years ending after December 31, 2005. The definition of
solar energy property was modified to exclude property used to
generate energy to heat swimming pools. In Table 1, all of
these changes are incorporated in the tax expenditure estimate
for the ``Energy credit (Section 48).''
--An early termination was provided for the deduction for
clean fuel vehicles and refueling property. The deduction was
scheduled to expire for property placed in service after
December 31, 2006, but was terminated for property placed in
service after December 31, 2005. This tax expenditure is not
listed in Table 1 because the estimated revenue loss is below
the de minimis amount.
--The income tax credit and excise tax credit for biodiesel
were scheduled to expire for fuel sold or used after December
31, 2006, but were extended to include fuel sold or used prior
to January 1, 2011.
--The definition of a small ethanol producer was modified
by increasing the limit on production capacity from 30 million
gallons to 60 million gallons per year. Small ethanol producers
are eligible for an excise tax credit of 10 cents per gallon.
The modified definition is effective for taxable years ending
after the date of enactment. In Table 1, this change is
reflected in the tax expenditure estimate for ``Tax credits for
alcohol fuels.''
--The research tax credit was modified as it applies to
qualified energy research by providing that a taxpayer may
claim a credit equal to 20 percent of expenditures on qualified
energy research undertaken by an energy research consortium. In
addition, the definition of contract research expenses was
broadened to include 100 percent of amounts paid to eligible
small businesses, universities, and Federal laboratories. These
changes were effective for amounts paid or incurred after the
date of enactment. However, the research tax credit expired for
amounts paid or incurred after December 31, 2005, and is no
longer listed in Table 1. There are revenue losses in fiscal
years 2006 through 2010 that are associated with research
credits earned in prior years and carried forward, but these
revenue losses are not associated with ongoing taxpayer
activity, and thus do not justify the inclusion of the research
credit in Table 1.
The Katrina Emergency Tax Relief Act of 2005 (H.R. 3768),
enacted on September 23, 2005 (Pub. L. No. 109-73), created a
number of new tax expenditures and modified several tax
expenditures. In the descriptions that follow, the term
``Hurricane Katrina disaster area'' means any area with respect
to which a major disaster has been declared by the President
before September 14, 2005, under section 401 of the Robert T.
Stafford Disaster Relief and Emergency Assistance Act by reason
of Hurricane Katrina, and the term ``core disaster area'' means
that portion of the Hurricane Katrina disaster area determined
by the President to warrant individual or individual and public
assistance from the Federal government under such Act. The new
tax expenditures are as follows:
--An employee retention credit was provided for qualified
wages paid by an eligible employer to an eligible employee. An
eligible employer is an employer that (1) conducted an active
trade or business in the core disaster area on August 28, 2005,
(2) ceased operating such business for at least one day after
August 28, 2005, and before January 1, 2006, as a result of
damage sustained by reason of Hurricane Katrina, and (3)
employed an average of no more than 200 employees during the
taxable year. An eligible employee is an employee whose
principal place of employment on August 28, 2005, was with an
eligible employer in the core disaster area. Qualified wages
are wages (up to a maximum of $6,000 per employee) that were
paid or incurred after August 28, 2005, and before January 1,
2006, during the period beginning when the business became
inoperable and ending when the business resumed significant
operations. This new tax expenditure was later expanded to
include employees affected by Hurricanes Rita and Wilma and
modified to remove the employer size limitation. Thus, in Table
1, the tax expenditure is listed as ``Tax credit for employee
retention for employers affected by Hurricanes Katrina, Rita,
and Wilma.''
--An additional personal exemption was provided for
taxpayers who provide 60 days or more of free housing in their
personal residence to individuals displaced by Hurricane
Katrina. The exemption is $500 per displaced individual, up to
a maximum of four such individuals. The additional exemption
may be claimed only once and applies to taxable years beginning
in 2005 and 2006.
--An exclusion was provided for the income from certain
discharges of nonbusiness debt owed by individuals who were
living in the core disaster area or the Hurricane Katrina
disaster area on August 25, 2005, and suffered economic loss by
reason of Hurricane Katrina. The exclusion applies to
discharges made on or after August 25, 2005, and before January
1, 2007.
The Katrina Emergency Tax Relief Act of 2005 modified some
existing tax expenditures, as follows:
--Special tax treatment was provided for qualified
Hurricane Katrina distributions from qualified retirement
plans, 403(b) annuities, and IRAs. These distributions are not
subject to the 10-percent early withdrawal tax, the
distributions may be included in income ratably over three
years, and the distributions may be recontributed to an
eligible retirement plan within three years. These provisions
became effective on the date of enactment. In Table 1, these
provisions are reflected in the estimates for the various
pension and IRA tax expenditures listed under ``Income
Security.''
--The work opportunity tax credit was broadened to include
qualified Hurricane Katrina employees as a targeted group
eligible for the credit, and the expiration date for the credit
was waived for purposes of Hurricane Katrina employees. The
credit applies to individuals who had a principal place of
abode in the core disaster area on August 28, 2005, and during
the two-year period beginning on that date, either (1) begin
working in the core disaster area, or (2) are displaced from
such abode and begin working outside the core disaster area.
The work opportunity tax credit for other targeted groups
expired for employees hired after December 31, 2005. However,
the credit applies to wages paid to qualified employees during
the first 12 months of employment. Thus employees hired in
December 2005 will earn credits for their employers through
November 2006. In Table 1, the tax expenditure estimate for the
``Work opportunity tax credit'' is based on credits earned for
Hurricane Katrina employees working in 2006 and 2007, credits
earned for other targeted groups of employees working in 2006,
and credits earned in prior years and carried forward to
taxable years beyond 2006.
--A temporary suspension was provided for certain
limitations on charitable contributions by individuals and
corporations. The suspension applies to qualified contributions
made during the period August 28, 2005, through December 31,
2005. In the case of a corporation, the qualified contributions
must be for relief efforts related to Hurricane Katrina. In
Table 1, this suspension is reflected in the various tax
expenditure estimates for deductions for charitable
contributions.
--An increase in the standard mileage rate was provided for
taxpayers who use a vehicle in providing donated services to
charity for the provision of relief related to Hurricane
Katrina. In addition, an exclusion was provided for certain
mileage expense reimbursements received by volunteer drivers
who are providing donated services to charity for the provision
of relief related to Hurricane Katrina. These two provisions
apply to services donated during the period August 25, 2005,
through December 31, 2006. In Table 1, the effects of these two
provisions are reflected in the various tax expenditure
estimates for deductions for charitable contributions.
--The enhanced deduction for contributions of food
inventories by C corporations was extended to all taxpayers,
effective for contributions made after August 28, 2005, and
before January 1, 2006. In Table 1, the effects of this
deduction are reflected in the various tax expenditure
estimates for deductions for charitable contributions.
--The enhanced deduction for contributions of food
inventories was broadened to include contributions of books to
certain public elementary and secondary schools, effective for
contributions made after August 28, 2005, and before January 1,
2006. In Table 1, the effects of this deduction are reflected
in the tax expenditure estimate for ``Deduction for charitable
contributions to educational institutions.''
--A suspension was provided for certain limitations on
personal casualty and theft losses. In general, such losses are
deductible only if they exceed $100 per casualty or theft, and
only to the extent that the sum of all such losses exceeds 10
percent of an individual taxpayer's adjusted gross income.
These two limitations were suspended for casualty and theft
losses that occurred on or after August 25, 2005, in the
Hurricane Katrina disaster area and were attributable to the
hurricane. In Table 1, the suspension of these limitations is
reflected in the tax expenditure estimate for ``Deduction for
casualty and theft losses.''
--The first-time homebuyer requirement for qualified
mortgage bonds was waived for qualified Hurricane Katrina
recovery residences, thereby authorizing the use of qualified
mortgage bonds to finance purchases of such residences. The
provision became effective on the date of enactment and applies
to residences financed before January 1, 2008. In Table 1, this
change is reflected in the tax expenditure estimate for
``Exclusion of interest on State and local government qualified
private activity bonds for owner-occupied housing.''
--The replacement period for deferral of recognition of
gain on involuntary conversions of property was extended for
property in the Hurricane Katrina disaster area that was
involuntarily convered on or after August 25, 2005, by reason
of Hurricane Katrina. The replacement period for such property
was extended from two years to five years, effective upon the
date of enactment. In Table 1, this change is reflected in the
tax expenditure estimate for ``Deferral of gain on like-lind
exchanges.''
--Qualified individuals may elect to calculate their earned
income credit and refundable child credit for the taxable year
which includes August 25, 2005, using their earned income from
the prior taxable year. Qualified individuals are (1)
individuals who on August 25, 2005, had their principal place
of abode in the core disaster area or (2) individuals who on
such date were not in the core disaster area but lived in the
Hurricane Katrina disaster area and were displaced from their
homes. Qualified individuals are permitted to make the election
only if their earned income for the taxable year which includes
August 25, 2005, is less than their earned income for the
preceding taxable year. In Table 1, the effects of this
election are reflected in the tax expenditure estimates for
``Earned income credit'' and ``Tax credit for children under
age 17.''
The Gulf Opportunity Zone Act of 2005 (H.R. 4440), enacted
on December 21, 2005 (Pub. L. No. 109-135), created several new
tax expenditures and modified some existing tax expenditures.
In the descriptions that follow, the term ``Gulf Opportunity
Zone'' refers to that portion of the Hurricane Katrina disaster
area determined by the President to warrant individual or
individual and public assistance from the Federal government
under the Robert T. Stafford Disaster Relief and Emergency
Assistance Act by reason of Hurricane Katrina. The term
``Hurricane Rita disaster area'' means an area with respect to
which a major disaster has been declared by the President
before October 6, 2005, under section 401 of the Robert T.
Stafford Disaster Relief and Emergency Assistance Act by reason
of Hurricane Rita. The term ``Rita GO Zone'' means that portion
of the Hurricane Rita disaster area determined by the President
to warrant individual or individual and public assistance from
the Federal government under section 401 of the Robert T.
Stafford Disaster Relief and Emergency Assistance Act by reason
of Hurricane Rita. The term ``Hurricane Wilma disaster area''
means an area with respect to which a major disaster has been
declared by the President before November 14, 2005, under
section 401 of the Robert T. Stafford Disaster Relief and
Emergency Assistance Act by reason of Hurricane Wilma. The term
``Wilma GO Zone'' means that portion of the Hurricane Wilma
disaster area determined by the President to warrant individual
or individual and public assistance from the Federal government
under section 401 of the Robert T. Stafford Disaster Relief and
Emergency Assistance Act by reason of Hurricane Rita. The new
tax expenditures are as follows:
--An additional first-year depreciation deduction was
provided for qualified Gulf Opportunity Zone property. The
deduction is effective for property placed in service on or
after August 28, 2005, and expires for property placed in
service after December 31, 2008.
--Partial expensing was provided for Gulf Opportunity Zone
clean-up costs, defined as amounts paid or incurred for the
removal of debris from, or the demolition of structures on,
real property located in the Zone, effective for amounts paid
or incurred on or after August 28, 2005, and before January 1,
2008.
--A 10-year carryback period was provided for casualty
losses of Gulf Opportunity Zone public utility property by
reason of Hurricane Katrina, effective for losses arising in
taxable years ending on or after August 28, 2005.
--A five-year carryback period was provided for net
operating losses attributable to various casualty losses and
certain moving expenses, temporary housing expenses, repair
expenses, and other expenses related to Hurricane Katrina,
effective for losses paid or incurred after August 27, 2005,
and before January 1, 2008.
--A tax credit was provided for the holders of Gulf Tax
Credit Bonds, which are a new category of bonds that may be
issued in calendar year 2006 by the States of Louisiana,
Mississippi, and Alabama.
--Taxpayers who incurred casualty losses attributable to
Hurricane Katrina with respect to public utility property
located in the Gulf Opportunity Zone were provided the option
to take such losses into account in the fifth taxable year
preceding the taxable year in which the loss occurred,
effective for taxable years ending on or after August 28, 2005.
In Table 1, this tax expenditure is listed as ``Five-year
carryback period for casualty losses of public utility property
attributable to Hurricane Katrina.''
--A temporary income exclusion was provided for the value
of in-kind lodging provided for a month to a qualified employee
(and spouse and dependents) by or on behalf of a qualified
employer, with the employer receiving an income tax credit of
30 percent of the value of the excluded lodging. A qualified
employee is an individual who had a principal residence in the
Gulf Opportunity Zone on August 28, 2005, and performed
substantially all of his or her employment services in the Zone
for an employer with a trade or business in the Zone. The
provision applies to lodging provided during the period
beginning on the first day of the first month after the date of
enactment and ending on the date that is six months after such
first day. In Table 1, this tax expenditure is listed as ``Tax
credit for Gulf Opportunity Zone employers providing in-kind
lodging for employees and income exclusion for the employees.''
The Gulf Opportunity Zone Act modified or extended a number
of existing tax expenditures, as follows:
--The States of Alabama, Louisiana, and Mississippi were
authorized to issue qualified Gulf Opportunity Zone private
activity bonds to finance the construction and rehabilitation
of residential and nonresidential property. The maximum amount
of the bonds that may be issued in each State is limited to
$2,500 multiplied by the population of the State. The bonds
must be issued after the date of enactment and before January
1, 2011. In Table 1, this new bond authority is reflected in
the tax expenditure estimate for ``Exclusion of interest on
public purpose State and local government bonds.''
--An additional advance refunding was permitted for certain
governmental and qualified 501(c)(3) bonds issued by the States
of Alabama, Louisiana, and Mississippi, or any political
subdivision thereof, notwithstanding the general prohibition on
the advance refunding of such bonds. The advance refunding is
effective for bonds issued after the date of enactment and
before January 1, 2011. In Table 1, this new bond authority is
reflected in the tax expenditure estimate for ``Exclusion of
interest on public purpose State and local government bonds.''
--The limits on section 179 expensing were increased for
qualified Gulf Opportunity Zone property acquired on or after
August 28, 2005, and placed in service on or before December
31, 2007. In Table 1, the effects of this increase are
reflected in the tax expenditure estimate for ``Expensing under
section 179 of depreciable business property.''
--A number of modifications were made to the low-income
housing credit. Some of the modifications only apply to
property within the Gulf Opportunity Zone while others also
apply to property in the Rita and Wilma Gulf Opportunity Zones.
The modifications have various effective dates. In Table 1, the
effects of these modifications are reflected in the tax
expenditure estimate for ``Tax credit for low-income housing.''
--The expensing of environmental remediation costs, which
was scheduled to expire for costs paid or incurred after
December 31, 2005, was extended for two years (through December
31, 2007) for qualified contaminated sites located in the Gulf
Opportunity Zone.
--The tax credit for rehabilitation expenditures was
increased for certified historic structures and qualified
rehabilitation buildings in the Gulf Opportunity Zone,
effective for costs incurred on or after August 28, 2005, and
before January 1, 2009.
--The expensing limit for reforestation expenditures was
doubled for qualified timber property located in the Gulf,
Rita, and Wilma Opportunity Zones. The effective dates vary
depending upon the Zone in which the property is located. The
expensing expires for costs paid or incurred after December 31,
2007. In Table 1, the effects of this expensing are reflected
in the tax expenditure estimate for ``Amortization and
expensing of reforestation expenditures.''
--For the purpose of the five-year carryback rule for net
losses from farming, the definition of a farming loss was
broadened to include certain losses attributable to qualified
timber property located in the Gulf or Rita Opportunity Zones.
The proposal is effective for taxable years ending on or after
August 28, 2005, for losses occurring after August 28, 2005 (in
the Gulf Opportunity Zone; after September 23, 2005 (in the
Rita Zone); after October 23, 2005 (in the Wilma Zone), and
before January 1, 2007. In Table 1, the effects of this
provision are reflected in the tax expenditure estimate for
``Five-year carryback period for net operating losses
attributable to farming.''
--Additional allocations were provided for the new markets
tax credit, in the amounts of $300 million for 2005 and 2006
and $400 million for 2007, to be allocated among qualified
community development entities to make qualified low-income
community investments within the Gulf Opportunity Zone. In
Table 1, these new allocations are reflected in the tax
expenditure estimate for ``New markets tax credit.''
--A temporary expansion of the Hope and Lifetime Learning
credits was provided for students attending an eligible
education institution located in the Gulf Opportunity Zone,
effective for taxable years beginning in 2005 or 2006. In Table
1, the effects of this expansion are reflected in the tax
expenditure estimate for ``Tax credits for tuition for post-
secondary education.''
--An extension was provided for the waiver of the first-
time homebuyer requirement with respect to qualified Hurricane
Katrina recovery residences financed with qualified mortgage
bonds. The extension applies to financing provided through
December 31, 2010. In Table 1, the effects of this extension
are reflected in the tax expenditure estimate for ``Exclusion
of interest on State and local government qualified private
activity bonds for owner-occupied housing.''
--The Secretary of the Treasury was authorized to extend
beyond December 31, 2005, on a case-by-case basis, the placed-
in-service date for bonus depreciation, for property placed in
service or manufactured in the Gulf, Rita, or Wilma Opportunity
Zones. The authority extends only to circumstances in which the
taxpayer was unable to meet the December 31, 2005, deadline as
a result of Hurricane Katrina, Rita, or Wilma. In Table 1, this
extension is reflected in the tax expenditure estimate for
``Depreciation of equipment in excess of the alternative
depreciation system.''
--The special tax treatment for qualified Hurricane Katrina
distributions from qualified retirement plans, 403(b)
annuities, and IRAs was expanded to include any ``qualified
hurricane distribution,'' defined to include distributions
related to Hurricanes Rita and Wilma, effective upon date of
enactment. In Table 1, this expansion is reflected in the
various pension and IRA tax expenditures listed under ``Income
Security.''
--The employee retention credit for employers affected by
Hurricane Katrina was extended to include employers affected by
Hurricanes Rita and Wilma and the employer size limitation was
eliminated. The retention credit is effective for wages paid
after September 23, 2005, in the case of Hurricane Rita and
wages paid after October 23, 2005, in the case of Hurricane
Wilma.
--The temporary suspension of certain limitations on
charitable contributions made by individuals and corporations,
which applied to contributions for relief efforts related to
Hurricane Katrina, was broadened to include relief efforts
related to Hurricanes Rita and Wilma. In Table 1, this
broadened suspension of limitations is reflected in the various
tax expenditure estimates for deductions for charitable
contributions.
--The suspension of certain limitations on personal
casualty and theft losses, which applied to losses occurring in
the Hurricane Katrina disaster area, was broadened to include
losses occurring in the Hurricane Rita disaster area on or
after September 23, 2005, and losses occurring in the Hurricane
Wilma disaster area on or after October 23, 2005. In Table 1,
this broadened suspension of limitations is reflected in the
tax expenditure estimate for ``Deduction for casualty and theft
losses.''
--The Hurricane Katrina look-back rules for calculating the
earned income credit and refundable child credit were broadened
to include qualified individuals affected by Hurricanes Rita
and Wilma. The look-back rules apply to Hurricane Rita
individuals in taxable years that include September 23, 2005,
and Hurricane Wilma individuals in taxable years that include
October 23, 2005. In Table 1, the effects of this broadening of
the look-back rules are reflected in the tax expenditure
estimates for ``Earned income credit'' and ``Tax credit for
children under age 17.''
--The waiver of the first-time homebuyer requirement for
qualified Hurricane Katrina recovery residences was extended to
include residences located in the Rita and Wilma Gulf
Opportunity Zones, thereby authorizing the use of qualified
mortgage bonds to finance the purchases of residences in these
zones, and other rules governing the mortgage bonds were
liberalized. The broadened waiver and other liberalized rules
apply to residences financed before January 1, 2011. In Table
1, the broadened waiver and liberalized rules are reflected in
the tax expenditure estimate for ``Exclusion of interest on
State and local government qualified private activity bonds for
owner-occupied housing.''
--The option to treat combat pay that is otherwise excluded
from gross income under section 112 as earned income for
purposes of the earned income credit, which was scheduled to
expire for taxable years ending after December 31, 2005, was
extended for one year, and is now effective for taxable years
ending before January 1, 2006. In Table 1, the effect of this
extension is reflected in the tax expenditure estimate for
``Earned income credit.''
Expiring Tax Expenditure Provisions
A number of tax expenditure provisions expired in 2005 or
are scheduled to expire in 2006:
--The above-the-line deduction for teacher classroom
expenses expired for expenses incurred in taxable years
beginning after December 31, 2005. This tax expenditure is no
longer listed in Table 1.
--The above-the-line deduction for qualified tuition and
related expenses (section 222) expired for taxable years
beginning after December 31, 2005. This tax expenditure is no
longer listed in Table 1.
--The option to deduct State and local sales taxes in lieu
of State and local income taxes expired for taxable years
beginning after December 31, 2005. In Table 1, this change is
reflected in the tax expenditure estimate for ``Deduction for
non-business State and local government income, sales, and
personal property taxes.''
--The enhanced deduction for corporate contributions of
computer equipment to public libraries and elementary and
secondary schools expired for contributions made after December
31, 2005. In Table 1, this expiration is reflected in the tax
expenditure estimate for ``Deduction for charitable
contributions to educational institutions.''
--The authority to issue qualified zone academy bonds
expired for obligations issued after December 31, 2005. The tax
expenditure estimate in Table 1 reflects the tax credits that
will be earned by the holders of bonds issued prior to the
expiration.
--The tax incentives for the District of Columbia
enterprise zone expired after December 31, 2005. This tax
expenditure is no longer listed in Table 1.
--The tax incentives for the New York City Liberty Zone
include (1) an additional first-year depreciation deduction for
qualified Liberty Zone property, which expires for property
placed in service after December 31, 2009; (2) the authority to
issue tax-exempt private activity bonds, which was extended by
the Working Families Tax Relief Act of 2004 and expires after
December 31, 2009; (3) a work opportunity tax credit for
Liberty Zone employees, which expired for work performed after
December 31, 2003; (4) the authority for one additional advance
refunding for certain bonds for facilities located in New York
City, which was extended by the Working Families Tax Relief Act
of 2004 and expires after December 31, 2005; (5) an increase in
section 179 expensing for qualified property used in the
Liberty Zone, which expires for taxable years beginning after
December 31, 2006; and (6) a five-year recovery period for
Liberty Zone leasehold improvement property, which expires for
property placed in service after December 31, 2006. In Table 1,
these expirations are reflected in the tax expenditure estimate
for ``New York City Liberty Zone tax incentives.''
--The tax credit for research and experimentation expenses
expired for expenses paid or incurred after December 31, 2005.
This tax expenditure is no longer listed in Table 1.
--The wage credit for Indian reservation employment expired
for wages incurred after December 31, 2005. This tax
expenditure is not listed in Table 1 because the estimated
revenue loss in fiscal year 2006 is below the de minimis
amount.
--The 15-year straight-line cost recovery for qualified
leasehold improvement property and qualified restaurant
property expires for property placed in service after December
31, 2005. In Table 1, these expirations are reflected in the
tax expenditure estimate for ``Depreciation of buildings other
than rental housing in excess of the alternative depreciation
system.''
--The deduction for clean-fuel vehicles and refueling
property expired for property placed in service after December
31, 2005. This tax expenditure is no longer listed in Table 1.
--The tax credit for Puerto Rico and possession income and
Puerto Rico economic activity expires for taxable years
beginning after 2005. In Table 1, this expiration is reflected
in the tax expenditure estimate for this provision.
--After December 31, 2005, no new contributions may be made
to Archer Medical Savings Accounts (``MSAs'') except by
individuals who previously made Archer MSA contributions and by
employees of small employers with prior Archer MSA
participation. The Archer MSA tax expenditure is not listed in
Table 1 because the estimated revenue loss is below the de
minimis amount.
Comparisons with Treasury Department
The Joint Committee staff and Treasury lists of tax
expenditures differ in three 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 broader definition of
the normal income tax base. Thus, the Joint Committee list of
tax expenditures includes some provisions that are not
contained in the Treasury list. The cash method of accounting
by certain businesses provides an example. The Treasury
considers the cash accounting option for certain businesses to
be 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 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
2005-2011. The Joint Committee staff estimates cover the
current fiscal year and the succeeding four fiscal years, i.e.,
fiscal years 2006-2010.
Third, 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 2006 through 2010. The Treasury rounds all yearly
estimates to the nearest $10 million and excludes those
provisions with estimates that round to zero in each year, i.e.
provisions that result in less than $5 million in revenue loss
in each of the years 2005 through 2011.
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 provisions that are
contained in the Joint Committee staff list of tax expenditures
(and are shown in Table 1) but are not contained in the
Treasury list:
National defense
--Deduction for overnight-travel expenses of National Guard and
Reserve Members
Energy
--Five-year carryback period for certain net operating losses
of electric utility companies
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
--Amortization of certified pollution control facilities
--Amortization and expensing of reforestation expenditures
Agriculture
--Exclusion of cost-sharing payments
--Five-year carryback period for net operating losses
attributable to farming
Insurance companies
--Special treatment of life insurance company reserves
--Deduction of unpaid loss reserves of property and casualty
companies
Other 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
--Tax credit for the cost of carrying tax-paid distilled
spirits in wholesale inventories
Employment
--Exclusion of miscellaneous fringe benefits
--Exclusion of employee awards
--Exclusion of income earned by voluntary employee beneficiary
associations
--Deferral of taxation on spread on acquisition of stock under
incentive stock option plans and employee stock
purchase plans
Health
--Exclusion of medical care and Tricare medical insurance for
military dependents, retirees, and retiree
dependents
Medicare
--Exclusion of Medicare Hospital Insurance (Part A)
--Exclusion of Medicare Supplementary Medical Insurance (Part
B)
--Exclusion of Medicare prescription drug insurance (Part D)
--Exclusion of certain subsidies to employers who maintain
prescription drug plans for Medicare enrollees
The following tax provisions are not included in the Joint
Committee staff list of tax expenditures or the Treasury list.
However, these provisions are viewed as tax expenditures by the
Joint Committee staff. These provisions are not listed in Table
1 because the estimated revenue losses for fiscal years 2005
through 2009 are below the de minimis amount ($50 million):
Energy
--Tax credit for enhanced oil recovery costs
--Expensing of tertiary injectants
--Tax credit for the residential purchase of qualified
photovoltaic and solar water heating property
--Tax credit for electric vehicles
Agriculture
--Cash accounting for agriculture
Financial institutions
--Exclusion of investment income from structured settlement
arrangements
Community and Regional Development
--Wage credit for Indian Reservation employment
Social services
--Exclusion of restitution payments received by victims of the
Nazi regime and the victims' heirs and estates
Income security
--Exclusion of survivor annuities paid to families of public
safety officers killed in the line of duty
--Exclusion of disaster mitigation payments
The following is a list of the tax provisions that are
included in the Treasury list and are viewed as tax
expenditures by the Joint Committee staff but are excluded from
Table 1 because the estimated revenue losses for fiscal years
2005 through 2009 are below the de minimis amount ($50
million):
Energy
--Tax credit for production of electricity from qualifying
advanced nuclear power facilities
--Tax credit for the construction of energy-efficient new homes
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 certain small insurance companies
Other business and commerce
--Exclusion of income from discharge of indebtedness incurred
in connection with qualified real property
Community and Regional Development
--Expensing of environmental remediation costs
(``Brownfields'')
Health
--Archer medical savings accounts
There are five 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 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.\14\ The third and fourth provisions are
the tax exemption for certain mutual and cooperative telephone
and electric companies and the exclusion of gain on the sale or
exchange of certain brownfield sites by certain tax-exempt
organizations. These two provisions are not in the Joint
Committee staff list because the special tax rules for pass-
through entities are assumed to be a part of normal tax
law.\15\ The fifth provision in the Treasury list that is not
in the Joint Committee staff list is the alternative fuel and
fuel mixture tax credit. This tax credit is not in the Joint
Committee staff list because it is a credit against excise tax
and has no effect on income tax liabilities.
---------------------------------------------------------------------------
\14\ See discussion of the alternative minimum tax and passive loss
rules, above on page 6.
\15\ See discussion on pages 7-8, 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
the January 2006 Congressional Budget Office revenue baseline
and Joint Committee staff projections of the gross income,
deductions, and expenditures of individuals and corporations
for calendar years 2005-2010. 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 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
three reasons. First, unlike revenue estimates, tax expenditure
estimates do not incorporate the effects of the behavioral
changes that are anticipated to occur in response to the repeal
of a tax expenditure 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
that are affected by the timing of tax payments. Third, some of
the tax provisions that provide an exclusion from income also
apply to the FICA tax base, and the repeal of the income tax
provision would automatically increase FICA tax revenues as
well as income tax revenues. There may also be interactions
between income tax provisions and other Federal taxes such as
excise taxes and the estate and gift tax.
If a tax expenditure provision were repealed, it is likely
that the repeal would be made effective for taxable years
beginning after a certain date. Because most individual
taxpayers have taxable years that coincide with the calendar
year, the repeal of a provision affecting the individual income
tax most likely would be effective for taxable years beginning
after December 31 of a certain year. However, the Federal
government's fiscal year begins October 1. Thus, the revenue
estimate for repeal of a provision would show a smaller revenue
gain in the first fiscal year than in subsequent fiscal years.
This is due to the fact that the repeal would be effective
after the start of the Federal 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 projections of tax return information for
each of nine income classes on the number of all returns
(including filing and nonfiling units), the number of taxable
returns, the number of 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 2006-2010
[Billions of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
Corporations Individuals
Function ------------------------------------------------------------------------------------------ Total
2006 2007 2008 2009 2010 2006 2007 2008 2009 2010 2006-10
--------------------------------------------------------------------------------------------------------------------------------------------------------
National Defense
Exclusion of benefits and allowances to Armed ....... ....... ....... ....... ....... 2.8 2.8 2.9 3.0 3.0 14.5
Forces personnel................................
Exclusion of military disablity benefits......... ....... ....... ....... ....... ....... 0.1 0.1 0.1 0.1 0.1 0.4
Deduction for overnight-travel expenses of ....... ....... ....... ....... ....... 0.1 0.1 0.1 0.1 0.1 0.3
National Guard and Reserve Members..............
International Affairs
Exclusion of income earned abroad by U.S. ....... ....... ....... ....... ....... 3.8 4.0 4.2 4.4 4.6 21.0
citizens........................................
Exclusion of certain allowances for Federal ....... ....... ....... ....... ....... 0.6 0.6 0.7 0.7 0.8 3.4
employees abroad................................
Exclusion of extraterritorial income............. 3.9 1.9 0.1 0.1 0.1 0.1 (\1\) (\1\) (\1\) (\1\) 6.2
Deferral of active income of controlled foreign 3.4 5.8 6.4 7.0 7.5 ....... ....... ....... ....... ....... 30.1
corporations....................................
Inventory property sales source rule exception... 6.2 6.4 6.6 6.8 7.0 ....... ....... ....... ....... ....... 33.0
Deferral of certain active financing income...... 1.1 1.7 ....... ....... ....... ....... ....... ....... ....... ....... 2.8
General Science, Space, and Technology
Expensing of research and experimental 2.0 3.7 5.5 6.0 5.8 (\1\) 0.1 0.1 0.1 0.1 29.4
expenditures....................................
Energy
Expensing of exploration and development costs:
Oil and gas.................................... 1.1 1.6 1.2 0.8 0.6 (\1\) (\1\) (\1\) (\1\) (\1\) 5.4
Other fuels.................................... (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.2
Excess of percentage over cost depletion:
Oil and gas.................................... 1.0 1.0 0.9 0.9 0.9 (\1\) (\1\) (\1\) (\1\) (\1\) 4.7
Other fuels.................................... 0.1 0.1 0.1 0.1 0.1 (\1\) (\1\) (\1\) (\1\) (\1\) 0.6
Tax credit and deduction for small refiners with (\1\) (\1\) (\1\) (\1\) (\1\) ....... ....... ....... ....... ....... 0.1
capital costs associated with EPA sulfur
regulation compliance...........................
Tax credit for production of non-conventional 2.7 3.2 1.2 (\1\) (\1\) 1.0 1.0 0.2 (\1\) (\1\) 8.8
fuels...........................................
Tax credit for alcohol fuels \2\................. (\1\) (\1\) (\1\) (\1\) (\1\) ....... ....... ....... ....... ....... 0.2
Tax credit for biodiesel fuels \3\............... (\1\) 0.1 0.1 (\1\) ....... ....... ....... ....... ....... ....... 0.2
Exclusion of interest on State and local (\1\) (\1\) (\1\) (\1\) (\1\) 0.1 0.1 0.1 0.1 0.1 0.5
government qualified private activity bonds for
energy production facilities....................
Exclusion of energy conservation subsidies ....... ....... ....... ....... ....... (\1\) (\1\) (\1\) (\1\) (\1\) 0.1
provided by public utilities....................
Energy credit (Section 48)....................... (\1\) 0.1 (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.2
Tax credit for electricity production from 2.0 3.7 5.5 6.0 5.8 0.1 0.1 0.1 0.1 0.1 29.4
renewable resources.............................
Deferral of gain from the disposition of electric 0.6 0.5 (\4\) -0.3 -0.3 ....... ....... ....... ....... ....... 0.4
transmission property to implement Federal
Energy Regulatory Commission restructuring
policy..........................................
Tax credit for holders of clean renewable energy (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.2
bonds...........................................
Tax credits for investments in clean coal power (\1\) 0.1 0.1 0.2 0.2 ....... ....... ....... ....... ....... 0.5
generation facilities...........................
Expensing of the cost of property used in the (\1\) (\1\) 0.1 0.2 0.3 ....... ....... ....... ....... ....... 0.7
refining of liquid fuels........................
Amortization of geological and geophysical costs (\4\) 0.1 0.2 0.2 0.1 (\4\) (\1\) 0.1 0.1 (\1\) 0.8
associated with oil and gas exploration.........
Deduction for expenditures on energy-efficient (\1\) 0.1 (\1\) (\4\) (\4\) (\1\) 0.1 (\1\) (\4\) (\4\) 0.3
commercial building property....................
Tax credit for the purchase of qualified energy ....... ....... ....... ....... ....... 0.1 0.3 0.2 ....... ....... 0.6
efficiency improvements to existing homes.......
Tax credit for the production of energy-efficient 0.1 0.1 ....... ....... ....... ....... ....... ....... ....... ....... 0.2
appliances......................................
Tax credits for alternative technology vehicles.. 0.1 0.1 (\1\) (\1\) (\1\) 0.2 0.2 0.1 0.1 (\1\) 0.8
Tax credit for clean-fuel vehicle refueling (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.1
property........................................
Five-year carryback period for certain net 0.1 (\1\) (\1\) (\4\) (\4\) ....... ....... ....... ....... ....... 0.1
operating losses of electric utility companies..
Natural Resources and Environment
Expensing of exploration and development costs, 0.1 0.1 0.1 0.1 0.1 (\1\) (\1\) (\1\) (\1\) (\1\) 0.4
nonfuel minerals................................
Excess of percentage over cost depletion, nonfuel 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 0.1 1.0
minerals........................................
Expensing of timber-growing costs................ 0.2 0.2 0.2 0.2 0.2 (\1\) (\1\) (\1\) (\1\) (\1\) 1.1
Exclusion of interest on State and local 0.2 0.2 0.2 0.2 0.2 0.4 0.4 0.5 0.5 0.5 3.3
government qualified private activity bonds for
sewage, water, and hazardous waste facilities...
Special rules for mining reclamation reserves.... (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.2
Special tax rate for nuclear decommissioning 0.5 0.6 0.7 0.8 0.8 ....... ....... ....... ....... ....... 3.4
reserve funds...................................
Exclusion of contributions in aid of construction (\1\) (\1\) (\1\) (\1\) (\1\) ....... ....... ....... ....... ....... 0.2
for water and sewer utilities...................
Amortization of certified pollution control (\1\) (\1\) 0.1 0.1 0.1 ....... ....... ....... ....... ....... 0.3
facilities......................................
Amortization and expensing of reforestation (\1\) (\1\) (\1\) (\1\) (\1\) 0.1 0.1 0.1 0.1 0.1 0.6
expenditures....................................
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 (\1\) (\1\) (\1\) (\1\) (\1\) 0.2 0.1 0.1 0.1 0.1 0.7
costs...........................................
Expensing of the costs of raising dairy and (\1\) (\1\) (\4\) (\4\) (\1\) 0.1 (\1\) (\4\) (\4\) (\1\) 0.2
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 ....... ....... ....... ....... ....... 0.1 0.1 0.1 0.1 0.1 0.4
of farmers......................................
Income averaging for farmers and fishermen....... ....... ....... ....... ....... ....... (\1\) (\1\) (\1\) (\1\) (\1\) 0.1
Five-year carryback period for net operating (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.1
losses attributable to farming..................
Commerce and Housing
Financial institutions:
Exemption of credit union income............... 1.7 1.8 1.9 2.0 2.1 ....... ....... ....... ....... ....... 9.3
Insurance companies:
Exclusion of investment income on life 2.5 2.5 2.6 2.7 2.7 25.5 26.1 26.8 27.5 28.2 147.1
insurance and annuity contracts...............
Small life insurance company taxable income 0.1 0.1 0.1 0.1 0.1 ....... ....... ....... ....... ....... 0.3
adjustment....................................
Special treatment of life insurance company 1.9 2.0 2.0 2.1 2.2 ....... ....... ....... ....... ....... 10.2
reserves......................................
Deduction of unpaid property loss reserves for 3.4 3.4 3.5 3.6 3.6 ....... ....... ....... ....... ....... 17.5
property and casualty insurance companies.....
Special deduction for Blue Cross and Blue 0.9 1.0 1.0 1.0 1.0 ....... ....... ....... ....... ....... 5.0
Shield companies..............................
Housing:
Deduction for mortgage interest on owner- ....... ....... ....... ....... ....... 69.4 75.6 80.7 85.9 91.1 402.7
occupied residences...........................
Deduction for property taxes on owner-occupied ....... ....... ....... ....... ....... 19.9 13.8 13.5 13.4 13.2 73.8
residences....................................
Exclusion of capital gains on sales of ....... ....... ....... ....... ....... 24.1 25.2 25.7 26.3 27.1 128.4
principal residences..........................
Exclusion of interest on State and local 0.3 0.4 0.4 0.4 0.4 0.9 1.0 1.0 1.1 1.1 7.0
government qualified private activity bonds
for owner-occupied housing....................
Exclusion of interest on State and local 0.2 0.2 0.2 0.2 0.2 0.5 0.5 0.5 0.6 0.6 3.7
government qualified private activity bonds
for rental housing............................
Depreciation of rental housing in excess of 0.4 0.5 0.6 0.7 0.8 4.0 4.6 5.3 6.1 7.0 29.9
alternative depreciation system...............
Tax credit for low-income housing.............. 3.4 3.6 3.8 4.1 4.4 1.4 1.5 1.6 1.7 1.9 27.4
Tax credit for rehabilitation of historic 0.3 0.3 0.3 0.3 0.3 0.1 0.1 0.1 0.1 0.1 2.2
structures....................................
Tax credit for rehabilitation of structures, (\1\) (\1\) (\1\) (\1\) (\1\) 0.1 0.1 0.1 0.1 0.1 0.5
other than historic structures................
Additional exemption for housing provided to ....... ....... ....... ....... ....... 0.1 (\1\) ....... ....... ....... 0.1
individuals displaced by Hurricane Katrina....
Tax credit for Gulf Opportunity Zone employers 0.1 (\1\) ....... ....... ....... 0.1 (\1\) ....... ....... ....... 0.2
providing in-kind lodging for employees and
income exclusion for the employees............
Other business and commerce:
Reduced rates of tax on dividends and long-term ....... ....... ....... ....... ....... 92.2 94.5 101.7 99.6 50.2 438.1
capital gains.................................
Exclusion of capital gains at death............ ....... ....... ....... ....... ....... 50.9 51.9 53.2 69.7 64.5 290.2
Carryover basis of capital gains on gifts...... ....... ....... ....... ....... ....... 5.4 5.5 5.7 7.6 56.1 80.3
Deferral of gain on non-dealer installment 0.6 0.7 0.7 0.7 0.8 0.5 0.5 0.5 0.6 0.6 6.2
sales.........................................
Deferral of gain on like-kind exchanges........ 2.0 2.1 2.2 2.4 2.5 0.8 0.8 0.9 0.8 1.0 15.5
Depreciation of buildings other than rental 0.4 0.6 0.8 1.1 1.4 0.4 0.5 0.7 1.0 1.3 8.3
housing in excess of alternative depreciation
system........................................
Depreciation of equipment in excess of the 5.7 11.0 17.7 23.4 27.7 -2.2 0.1 2.2 4.3 6.1 96.0
alternative depreciation system...............
Expensing under section 179 of depreciable 0.6 0.6 -0.1 -0.4 -0.2 2.8 2.6 0.1 -0.8 -0.4 4.8
business property.............................
Amortization of business startup costs......... (\1\) (\1\) (\1\) (\1\) (\1\) 0.7 0.7 0.8 0.8 0.9 3.9
Reduced rates on first $10,000,000 of corporate 4.3 4.3 4.3 4.3 4.3 ....... ....... ....... ....... ....... 21.6
taxable income................................
Permanent exemption from imputed interest rules (\1\) (\1\) (\1\) (\1\) (\1\) 0.4 0.4 0.4 0.4 0.5 2.1
Expensing of magazine circulation expenditures. (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.1
Special rules for magazine, paperback book, and (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.2
record returns................................
Completed contract rules....................... 0.3 0.3 0.4 0.4 0.5 (\1\) (\1\) (\1\) (\1\) (\1\) 1.9
Cash accounting, other than agriculture........ (\1\) (\1\) (\1\) (\1\) (\1\) 0.8 0.8 0.8 0.9 0.9 4.2
Exclusion of interest on State and local 0.1 0.1 0.1 0.1 0.1 0.3 0.3 0.3 0.4 0.4 2.3
government small-issue qualified private
activity bonds................................
Exception from net operating loss limitations 0.6 0.6 0.6 0.6 0.6 ....... ....... ....... ....... ....... 3.0
for corporations in bankruptcy proceedings....
Tax credit for employer-paid FICA taxes on tips 0.2 0.2 0.2 0.2 0.3 0.3 0.4 0.4 0.4 0.5 3.1
Deduction of certain film and television 0.1 0.1 0.1 (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.3
production costs..............................
Production activity deduction.................. 2.7 3.9 5.5 5.9 7.4 0.9 1.3 1.8 2.0 2.6 34.0
Tax credit for the cost of carrying tax-paid (\1\) (\1\) (\1\) (\1\) (\1\) ....... ....... ....... ....... ....... 0.1
distilled spirits in wholesale inventories....
Partial expensing of Gulf Opportunity Zone (\1\) (\1\) (\1\) (\4\) (\4\) (\1\) (\1\) (\1\) (\4\) (\4\) 0.1
clean-up costs................................
Additional first-year depreciation for Gulf 0.9 0.9 0.4 -0.1 -0.2 0.4 0.4 0.2 (\4\) -0.1 2.9
Opportunity Zone property.....................
Ten-year carryback period for casualty losses 0.2 (\1\) (\4\) (\4\) (\4\) ....... ....... ....... ....... ....... 0.2
of public utility property attributable to
Hurricane Katrina.............................
Five-year carryback period for casualty losses 0.1 (\1\) (\4\) (\4\) (\4\) ....... ....... ....... ....... ....... 0.1
of public utility property attributable to
Hurricane Katrina.............................
Five-year carryback period for losses 1.0 0.3 -0.1 -0.2 -0.2 ....... ....... ....... ....... ....... 0.9
attributable to various expenses related to
Hurricane Katrina.............................
Tax credit for employers for retention of (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) ....... 0.2
employees affected by Hurricanes Katrina,
Rita, and Wilma...............................
Transportation
Exclusion of interest on State and local (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.1
government qualified private activity bonds for
highway projects and rail-truck transfer
facilities......................................
Provide a 50-percent tax credit for certain 0.1 0.1 0.1 0.1 (\1\) ....... ....... ....... ....... ....... 0.4
expenditures for maintaining railroad tracks....
Deferral of tax on capital construction funds of 0.1 0.1 0.1 0.1 0.1 ....... ....... ....... ....... ....... 0.4
shipping companies..............................
Exclusion of employer-paid transportation ....... ....... ....... ....... ....... 4.2 4.3 4.4 4.5 4.7 22.1
benefits........................................
Community and Regional Development
New York City Liberty Zone tax incentives........ 0.4 0.2 0.1 (\4\) -0.1 -0.1 0.2 0.1 0.2 0.1 1.0
Empowerment zone tax incentives.................. 0.3 0.4 0.4 0.4 0.2 0.4 0.4 0.4 0.5 0.3 3.7
Renewal community tax incentives................. 0.2 0.2 0.2 0.2 0.2 0.3 0.4 0.4 0.4 0.3 2.9
New markets tax credit........................... 0.2 0.3 0.4 0.3 0.3 0.3 0.4 0.5 0.5 0.4 3.7
Exclusion of interest on State and local (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.1
qualified private activity bonds for green
buildings and sustainable design projects.......
Exclusion of interest on State and local 0.3 0.3 0.3 0.3 0.4 0.7 0.8 0.8 0.9 0.9 5.8
government qualified private activity 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 ....... ....... ....... ....... ....... 4.9 5.2 5.1 5.0 5.0 25.2
education.....................................
Deduction for interest on student loans........ ....... ....... ....... ....... ....... 0.8 0.9 0.9 0.9 1.0 4.5
Exclusion of tax on earnings of Coverdell ....... ....... ....... ....... ....... 0.1 0.1 0.1 0.2 0.2 0.7
education savings accounts....................
Exclusion of interest on educational savings ....... ....... ....... ....... ....... (\1\) (\1\) (\1\) (\1\) (\1\) 0.1
bonds.........................................
Exclusion of tax on earnings of qualified ....... ....... ....... ....... ....... 0.7 0.8 0.9 1.0 1.0 4.3
tuition programs..............................
Exclusion of scholarship and fellowship income. ....... ....... ....... ....... ....... 1.5 1.6 1.7 1.8 1.9 8.5
Exclusion of income attributable to the ....... ....... ....... ....... ....... (\1\) (\1\) (\1\) (\1\) (\1\) 0.1
discharge of certain student loan debt and
NHSC Educational Loan repayments..............
Exclusion of employer-provided education ....... ....... ....... ....... ....... 0.8 0.9 0.9 0.9 0.9 4.4
assistance benefits...........................
Exclusion of employer-provided tuition ....... ....... ....... ....... ....... 0.2 0.2 0.2 0.2 0.2 1.0
reduction benefits............................
Parental personal exemption for students age 19 ....... ....... ....... ....... ....... 0.5 0.2 0.2 0.1 (\1\) 1.0
to 23.........................................
Exclusion of interest on State and local 0.1 0.1 0.1 0.1 0.1 0.3 0.3 0.3 0.4 0.4 2.3
government qualified private activity bonds
for student loans.............................
Exclusion of interest on State and local 0.4 0.5 0.5 0.5 0.5 1.1 1.2 1.2 1.3 1.3 8.4
government qualified private activity bonds
for private nonprofit and qualified public
educational facilities........................
Tax credit for holders of qualified zone 0.1 0.1 0.1 0.1 0.1 ....... ....... ....... ....... ....... 0.5
academy bonds.................................
Deduction for charitable contributions to 0.7 0.7 0.7 0.8 0.8 5.3 5.9 6.3 6.8 7.1 35.1
educational institutions......................
Employment:
Exclusion of employee meals and lodging (other ....... ....... ....... ....... ....... 0.9 0.9 0.9 1.0 1.0 4.9
than military)................................
Exclusion of benefits provided under cafeteria ....... ....... ....... ....... ....... 27.9 30.6 33.4 36.6 40.0 168.5
plans \5\.....................................
Exclusion of housing allowances for ministers.. ....... ....... ....... ....... ....... 0.5 0.5 0.5 0.6 0.6 2.7
Exclusion of miscellaneous fringe benefits..... ....... ....... ....... ....... ....... 6.6 6.8 7.0 7.2 7.7 35.2
Exclusion of employee awards................... ....... ....... ....... ....... ....... 0.2 0.2 0.2 0.2 0.2 0.9
Exclusion of income earned by voluntary ....... ....... ....... ....... ....... 3.3 3.4 3.5 3.7 3.8 17.6
employees' beneficiary associations...........
Special tax provisions for employee stock 0.8 0.9 0.9 1.0 1.1 0.3 0.3 0.3 0.3 0.3 6.2
ownership plans (ESOPs).......................
Work opportunity tax credit.................... 0.2 0.1 0.1 (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.8
Welfare-to-work tax credit..................... (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) ....... 0.2
Deferral of taxation and capital gains ....... ....... ....... ....... ....... 0.4 0.4 0.4 0.2 0.1 1.5
treatment on spread on acquisition of stock
under incentive stock option plans and
employee stock purchase plans \6\.............
Social services:
Tax credit for children under age 17 \7\....... ....... ....... ....... ....... ....... 46.0 45.9 46.1 46.0 46.0 230.0
Tax credit for child and dependent care and ....... ....... ....... ....... ....... 3.1 2.7 2.7 2.6 2.5 13.5
exclusion of employer-provided child care
(\8\).........................................
Tax credit for employer-provided dependent care (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.2
Exclusion of certain foster care payments...... ....... ....... ....... ....... ....... 0.6 0.6 0.7 0.7 0.8 3.4
Adoption credit and employee adoption benefits ....... ....... ....... ....... ....... 0.4 0.5 0.5 0.5 0.5 2.4
exclusion.....................................
Deduction for charitable contributions, other 1.7 1.7 1.7 1.8 1.8 29.1 31.9 34.2 36.8 38.4 179.1
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 ....... ....... ....... ....... ....... 90.6 99.7 107.0 114.5 122.2 534.0
care, health insurance premiums, and long-term
care insurance premiums \9\.....................
Exclusion of medical care and TRICARE medical ....... ....... ....... ....... ....... 1.9 2.0 2.1 2.3 2.5 10.9
insurance for military dependents, retirees, and
retiree dependents..............................
Deduction for health insurance premiums and long- ....... ....... ....... ....... ....... 3.8 4.2 4.5 4.9 5.2 22.6
term care insurance premiums by the self-
employed........................................
Deduction for medical expenses and long-term care ....... ....... ....... ....... ....... 7.3 8.2 9.5 10.7 12.1 47.8
expenses........................................
Exclusion of workers' compensation benefits ....... ....... ....... ....... ....... 6.5 6.9 7.4 8.0 8.5 37.3
(medical benefits)..............................
Health savings accounts.......................... ....... ....... ....... ....... ....... 0.1 0.3 0.6 0.9 1.2 3.2
Exclusion of interest on State and local 0.6 0.7 0.7 0.8 0.8 1.7 1.8 1.9 2.0 2.1 13.1
government qualified private activity bonds for
private nonprofit hospital facilities...........
Deduction for charitable contributions to health 0.8 0.8 0.9 0.9 0.9 3.7 4.0 4.3 4.7 4.8 25.8
organizations...................................
Tax credit for orphan drug research.............. 0.2 0.3 0.3 0.3 0.3 ....... ....... ....... ....... ....... 1.4
Tax credit for purchase of health insurance by ....... ....... ....... ....... ....... 0.2 0.2 0.2 0.2 0.3 1.2
certain displaced persons.......................
Medicare
Exclusion of Medicare benefits:
Hospital insurance (Part A).................... ....... ....... ....... ....... ....... 18.5 20.7 22.5 24.5 26.7 112.9
Supplementary medical insurance (Part B)....... ....... ....... ....... ....... ....... 12.5 14.2 15.4 16.7 18.1 76.9
Prescription drug insurance (Part D)........... ....... ....... ....... ....... ....... 3.4 6.2 7.5 8.3 9.5 34.9
Exclusion of certain subsidies to employers who 0.7 1.2 1.4 1.5 1.6 ....... ....... ....... ....... ....... 6.3
maintain prescription drug plans for Medicare
enrollees.......................................
Income Security
Exclusion of workers' compensation benefits ....... ....... ....... ....... ....... 2.5 2.6 2.7 2.7 2.8 13.2
(disability and survivors payments).............
Exclusion of damages on account of personal ....... ....... ....... ....... ....... 1.4 1.5 1.5 1.5 1.5 7.4
physical injuries or physical sickness..........
Exclusion of special benefits for disabled coal ....... ....... ....... ....... ....... 0.1 0.1 (\1\) (\1\) (\1\) 0.2
miners..........................................
Exclusion of cash public assistance benefits..... ....... ....... ....... ....... ....... 3.4 3.6 3.7 3.9 4.0 18.6
Net exclusion of pension contributions and
earnings:
Employer plans................................. ....... ....... ....... ....... ....... 104.1 110.2 115.2 120.8 126.7 577.1
Individual retirement plans.................... ....... ....... ....... ....... ....... 11.2 14.0 15.5 16.9 18.4 76.0
Plans covering partners and sole proprietors ....... ....... ....... ....... ....... 9.4 10.3 10.8 11.3 11.6 53.4
(sometimes referred to as ``Keogh plans'')....
Tax credit for certain individuals for elective ....... ....... ....... ....... ....... 0.9 0.6 (\1\) ....... ....... 1.5
deferrals and IRA contributions.................
Tax credit for new retirement plan expenses of (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.1
small businesses................................
Exclusion of other employee benefits:
Premiums on group term life insurance.......... ....... ....... ....... ....... ....... 2.5 2.6 2.6 2.7 2.7 13.1
Premiums on accident and disability insurance.. ....... ....... ....... ....... ....... 2.6 2.8 2.9 3.0 3.1 14.4
Additional standard deduction for the blind and ....... ....... ....... ....... ....... 1.6 1.6 1.7 1.7 1.8 8.4
the elderly.....................................
Tax credit for the elderly and disabled.......... ....... ....... ....... ....... ....... (\1\) (\1\) (\1\) (\1\) (\1\) 0.1
Deduction for casualty and theft losses.......... ....... ....... ....... ....... ....... 0.7 0.8 0.3 0.3 0.3 2.4
Earned income credit (EIC)....................... ....... ....... ....... ....... ....... 42.1 42.8 43.5 44.5 45.4 218.3
Exclusion of cancellation of indebtedness income ....... ....... ....... ....... ....... 0.2 0.1 ....... ....... ....... 0.3
of Hurricane Katrina victims....................
Social Security and Railroad Retirement
Exclusion of untaxed social security and railroad ....... ....... ....... ....... ....... 23.1 24.1 24.8 25.9 27.2 125.1
retirement benefits.............................
Veterans' Benefits and Services
Exclusion of veterans' disability compensation... ....... ....... ....... ....... ....... 3.6 3.8 3.9 4.0 4.0 19.2
Exclusion of veterans' pensions.................. ....... ....... ....... ....... ....... 0.1 0.1 0.1 0.1 0.1 0.6
Exclusion of veterans' readjustment benefits..... ....... ....... ....... ....... ....... 0.2 0.3 0.3 0.3 0.3 1.3
Exclusion of interest on State and local (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) (\1\) 0.3
government qualified private activity bonds for
veterans' housing...............................
General Purpose Fiscal Assistance
Exclusion of interest on public purpose State and 7.3 7.8 8.2 8.6 9.0 18.7 20.1 21.1 22.1 23.1 146.0
local government bonds..........................
Deduction of nonbusiness State and local ....... ....... ....... ....... ....... 36.8 27.3 27.3 28.1 28.9 148.5
government income, sales, and personal property
taxes (\10\)....................................
Tax credit for Puerto Rico and possession income, 0.3 ....... ....... ....... ....... ....... ....... ....... ....... ....... 0.3
and Puerto Rico economic activity...............
Interest
Deferral of interest on savings bonds............ ....... ....... ....... ....... ....... 1.1 1.1 1.2 1.2 1.2 5.8
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Positive tax expenditure of less than $50 million.
\2\ In addition, the credit from excise tax for alcohol fuels results in a reduction in excise tax receipts, net of income tax effect, of $11.1 billion
over the fiscal years 2006 through 2010.
\3\ In addition, the credit from excise tax for biodiesel results in a reduction in excise tax receipts, net of income tax effect, of less than $50
million in each of the fiscal years 2006 through 2010.
\4\ Negative tax expenditure of less than $50 million.
\5\ Estimate includes amounts of employer-provided health insurance purchased through cafeteria plans and employer-provided child care purchased
through dependent care flexible spending accounts. These amounts are also included in other line items in this table.
\6\ Tax expenditure estimate does not include offsetting denial of corporate deduction for qualified stock option compensation.
\7\ Tax expenditure estimate includes refundable amounts, amounts used to offset income taxes, and amounts used to offset other taxes. The amount of
refundable child tax credit and earned income tax credit used to offset taxes other than income tax or paid out as refunds is: $50.1 billion in 2006,
$51.5 billion in 2007, $51.4 billion in 2008, $52.2 billion in 2009, and $53.2 in 2010.
\8\ Estimate includes employer-provided child care purchased through dependent care flexible spending accounts.
\9\ Estimate includes employer-provided health insurance purchased through cafeteria plans.
\10\ Deduction for state and local sales taxes expires after December 31, 2005.
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 2005 Rates and 2005 Law and 2005 Income Levels\1\
[Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
Itemized
Income Class \2\ All returns \3\ Taxable returns returns Tax liability
----------------------------------------------------------------------------------------------------------------
Below $10,000............................... 21,665 409 558 -$6,385
$10,000 to $20,000.......................... 20,100 5,912 1,254 -14,505
$20,000 to $30,000.......................... 17,742 7,961 2,297 -5,406
$30,000 to $40,000.......................... 15,541 9,195 3,369 8,330
$40,000 to $50,000.......................... 13,129 9,750 4,312 22,253
$50,000 to $75,000.......................... 22,469 19,550 10,244 78,638
$75,000 to $100,000......................... 13,690 13,362 8,691 87,524
$100,000 to $200,000........................ 16,322 16,241 13,446 231,480
$200,000 and over........................... 4,227 4,219 3,906 458,779
-------------------------------------------------------------------
Total................................. 144,885 86,599 48,077 $860,708
----------------------------------------------------------------------------------------------------------------
\1\ Tax law as in effect on December 31, 2005, is applied to the 2005 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 2005 Rates and 2005 Income Levels \1\
[Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
Medical deduction Real estate tax deduction
Income Class \2\ -------------------------------------------------------------------
Returns Amount Returns Amount
----------------------------------------------------------------------------------------------------------------
Below $10,000............................... 5 (\3\) 372 (\3\)
$10,000 to $20,000.......................... 180 $35 864 $30
$20,000 to $30,000.......................... 526 174 1,618 162
$30,000 to $40,000.......................... 880 320 2,414 350
$40,000 to $50,000.......................... 1,161 552 3,340 732
$50,000 to $75,000.......................... 2,490 1,716 8,534 2,929
$75,000 to $100,000......................... 1,647 1,488 7,689 3,478
$100,000 to $200,000........................ 1,290 2,395 12,356 9,646
$200,000 and over........................... 90 617 3,679 4,630
-------------------------------------------------------------------
Total................................. 8,269 $7,297 40,866 $21,957
----------------------------------------------------------------------------------------------------------------
Footnotes appear at the end of table.
Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items,
at 2005 Rates and 2005 Income Levels \1\--Continued
[Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
State and local income, sales, Charitable contribution
and personal property tax deduction
Income Class \2\ deduction ---------------------------------
----------------------------------
Returns Amount Returns Amount
----------------------------------------------------------------------------------------------------------------
Below $10,000............................... 20 $1 1 (\3\)
$10,000 to $20,000.......................... 447 25 289 $29
$20,000 to $30,000.......................... 1,479 141 1,114 165
$30,000 to $40,000.......................... 2,696 378 2,098 410
$40,000 to $50,000.......................... 3,885 777 3,115 711
$50,000 to $75,000.......................... 10,113 3,300 8,440 3,000
$75,000 to $100,000......................... 8,946 4,081 7,801 3,462
$100,000 to $200,000........................ 13,401 13,387 12,598 10,301
$200,000 and over........................... 3,192 17,881 3,747 17,851
-------------------------------------------------------------------
Total................................. 44,178 $39,969 39,209 $35,930
----------------------------------------------------------------------------------------------------------------
Footnotes appear at the end of table.
Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items,
at 2005 Rates and 2005 Income Levels \1\--Continued
[Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
Child care credit Earned income credit \4\
Income Class \2\ -------------------------------------------------------------------
Returns Amount Returns Amount
----------------------------------------------------------------------------------------------------------------
Below $10,000............................... 1 (\3\) 5,410 $6,161
$10,000 to $20,000.......................... 60 $18 6,302 15,659
$20,000 to $30,000.......................... 331 160 5,011 11,496
$30,000 to $40,000.......................... 624 362 3,833 5,493
$40,000 to $50,000.......................... 586 347 1,547 1,293
$50,000 to $75,000.......................... 1,270 649 181 202
$75,000 to $100,000......................... 1,076 552 9 9
$100,000 to $200,000........................ 1,627 841 3 2
$200,000 and over........................... 313 161 ............... ...............
-------------------------------------------------------------------
Total................................. 5,888 $3,090 22,296 $40,315
----------------------------------------------------------------------------------------------------------------
Footnotes appear at the end of table.
Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items,
at 2005 Rates and 2005 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 \2\ ----------------------------------
Returns Amount Returns Amount
----------------------------------------------------------------------------------------------------------------
Below $10,000............................... 14 $2 188 $211
$10,000 to $20,000.......................... 4,396 1,875 3,252 1,846
$20,000 to $30,000.......................... 3,469 2,389 4,509 5,300
$30,000 to $40,000.......................... 3,334 3,652 4,248 6,433
$40,000 to $50,000.......................... 2,809 3,572 3,506 5,821
$50,000 to $75,000.......................... 5,482 7,201 6,363 10,938
$75,000 to $100,000......................... 2,918 2,095 4,554 7,912
$100,000 to $200,000........................ 2,744 764 5,001 7,619
$200,000 and over........................... 679 263 10 8
-------------------------------------------------------------------
Total................................. 25,845 $21,813 31,631 $46,088
----------------------------------------------------------------------------------------------------------------
Footnotes appear at the end of table.
Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items,
at 2005 Rates and 2005 Income Levels \1\--Continued
[Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
Education credits Student loan interest deduction
Income Class \2\ -------------------------------------------------------------------
Returns Amount Returns Amount
----------------------------------------------------------------------------------------------------------------
Below $10,000............................... 6 (\3\) 33 $2
$10,000 to $20,000.......................... 754 $165 316 17
$20,000 to $30,000.......................... 994 438 526 41
$30,000 to $40,000.......................... 1,069 529 749 71
$40,000 to $50,000.......................... 1,013 538 823 108
$50,000 to $75,000.......................... 1,517 878 1,590 188
$75,000 to $100,000......................... 1,466 969 1,054 129
$100,000 to $200,000........................ 635 357 1,241 210
$200,000 and over........................... (\5\) (\3\) ............... ...............
-------------------------------------------------------------------
Total................................. 7,453 $3,875 6,332 $766
----------------------------------------------------------------------------------------------------------------
Footnotes appear at the end of table.
Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items,
at 2005 Rates and 2005 Income Levels \1\--Continued
[Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
Mortgage interest deduction
Income Class \2\ ---------------------------------
Returns Amount
----------------------------------------------------------------------------------------------------------------
Below $10,000................................................................. 342 $4
$10,000 to $20,000............................................................ 754 83
$20,000 to $30,000............................................................ 1,459 426
$30,000 to $40,000............................................................ 2,262 982
$40,000 to $50,000............................................................ 3,112 1,914
$50,000 to $75,000............................................................ 8,073 7,545
$75,000 to $100,000........................................................... 7,326 8,587
$100,000 to $200,000.......................................................... 11,656 25,081
$200,000 and over............................................................. 3,188 17,475
---------------------------------
Total................................................................... 38,171 $62,097
----------------------------------------------------------------------------------------------------------------
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\ Less than $500,000.
\4\ Includes the refundable portion.
\5\ Less than 500 returns.
Note.--Details may not add to totals due to rounding.
Source: Joint Committee on Taxation.