[JPRT 110-3-07]
[From the U.S. Government Publishing Office]



                                                               JCS-3-07
                        [JOINT COMMITTEE PRINT]
 
                        ESTIMATES OF FEDERAL TAX

                            EXPENDITURES FOR

                         FISCAL YEARS 2007-2011

                            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


                           SEPTEMBER 24, 2007



                     U.S. GOVERNMENT PRINTING OFFICE

37-755 PDF                 WASHINGTON DC:  2007
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[[Page (ii)]]



                      JOINT COMMITTEE ON TAXATION

                      110th Congress, 1st Session
                                 ------                                
               HOUSE                               SENATE
CHARLES B. RANGEL, New York,         MAX BAUCUS, Montana,
  Chairman                             Vice Chairman
FORTNEY PETE STARK, California       JOHN D. ROCKEFELLER IV, West 
SANDER M. LEVIN, Michigan                Virginia
JIM McCRERY, Louisiana               KENT CONRAD, North Dakota
WALLY HERGER, California             CHARLES E. GRASSLEY, Iowa
                                     ORRIN G. HATCH, Utah

[[Page (iii)]]



                            C O N T E N T S

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

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

II. Measurement of Tax Expenditures..................................20

III.Tax Expenditure Estimates........................................23


        Table 1.  Tax Expenditure Estimates by Budget Function, 
            Fiscal Years 2007-2011...............................    24
        Table 2.  Distribution of All Returns, Taxable Returns, 
            Itemized Returns, and Tax Liability by Income Class..    37
        Table 3.  Distribution of Selected Individual Tax 
            Expenditures by Income Class.........................    38

[[Page (1)]]



                              INTRODUCTION

    This report\1\ on tax expenditures for fiscal years 2007-
2011 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 2007-
2011 (JCS-3-07), September 24, 2007.
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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 2006-2012 in the 
Administration's budgetary statement of February 2007.\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), January 12, 
2005 (JCS-1-05), and April 25, 2006 (JCS-2-06).
    \3\ Office of Management and Budget, ``Tax Expenditures,'' Budget 
of the United States Government: Analytical Perspectives, Fiscal Year 
2008, February 5, 2007, pp. 285-327.

      
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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 August 31, 2007. 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 2007 Congressional 
Budget Office revenue baseline and Joint Committee staff 
projections of the gross income, deductions, and expenditures 
of individuals and corporations for calendar years 2006-2011.
    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 2007-2011 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.


[[Page (2)]]



                   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 2007-2011. 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 replace

[[Page 3]]

ment 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 are 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

[[Page 4]]

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

[[Page 5]]

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

[[Page 6]]

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 eco

[[Page 7]]

nomic 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 
deductions for contributions to nuclear decommissioning trust 
accounts and certain environmental settlement trust accounts 
are 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 incomes of these two types of trust accounts, and 
these tax rate reductions are viewed as tax expenditures.
    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

[[Page 8]]

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

    The Tax Increase Prevention and Reconciliation Act 
(``TIPRA'') of 2005 (H.R. 4297), enacted on May 17, 2006 (Pub. 
L. No. 109-222), created three new tax expenditures:
    --A tax exclusion was provided for the earnings of certain 
environmental settlement funds, effective for accounts and 
funds established after the date of enactment. The tax 
exclusion expires after December 31, 2010. In Table 1, this tax 
expenditure is listed as ``Tax exclusion for earnings of 
certain environmental settlement funds.''
    --Reduced rates of tax were provided for gains from the 
sale or exchange of self-created musical works, effective for 
sales or exchanges in taxable years beginning after the date of 
enactment and before January 1, 2011. This tax expenditure is 
not listed in Table 1 because the estimated revenue loss is 
below the de minimis amount.
    --Taxpayers were given the option of electing five-year 
amortization of expenses paid or incurred for the creation or 
acquisition of musical compositions, effective for expenses 
paid or incurred for property placed in service in taxable 
years beginning after 2005 and before 2011. This tax 
expenditure is not listed in Table 1 because the estimated 
revenue loss is below the de minimis amount.
    The Tax Increase Prevention and Reconciliation Act of 2005 
also extended or modified some existing tax expenditures, as 
follows:
    --The $100,000 limit on the expensing of depreciable 
tangible personal property by a small business, which was 
scheduled to expire for taxable years beginning after 2007, was 
extended for two years, and other modifications were made to 
the expensing provision. In Table 1, these changes are 
reflected in the tax expenditure estimate for ``Expensing under 
section 179 of depreciable business property.''
    --Reduced rates of tax on dividends and long-term capital 
gains of individuals, which were scheduled to expire for 
taxable years beginning after 2008, were extended for two 
years.
    --The temporary exceptions from subpart F foreign personal 
holding income, which were scheduled to expire for taxable 
years after 2006, were extended for two years. In Table 1, this 
change is reflected in the tax expenditure estimates for 
``Deferral of active income of controlled foreign 
corporations'' and ``Deferral of certain active financing 
income.''
    --The present-law provision providing for the deferral of 
active income of controlled foreign corporations was expanded 
by providing look-through treatment of payments between 
controlled foreign corporations, effective for taxable years of 
foreign corporations beginning after December 31, 2005, and 
before January 1, 2009.
    --Certain changes were made to the rules governing 
qualified veterans' mortgage bonds, including changes to the 
definition of an eligible veteran, and new State volume limits 
were provided for

[[Page 9]]

qualified veterans' mortgage bonds issued by the States of 
Alaska, Oregon, and Wisconsin in calendar years 2006 through 
2010, with the program expiring after 2010. In Table 1, these 
changes are reflected in the tax expenditure estimate for 
``Exclusion of interest on State and local government qualified 
private activity bonds for owner-occupied housing.''
    --An exception to the tax-exempt bond arbitrage 
restrictions for certain bonds secured by income from 
investments in the Texas Permanent University Fund was codified 
and extended. 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 private 
non-profit and qualified public educational facilities.''
    --The timing of the $20 million capital expenditure 
limitation on qualified small issue bonds was accelerated from 
bonds issued after September 30, 2009, to bonds issued after 
December 31, 2006. In Table 1, this change is reflected in the 
tax expenditure estimate for ``Exclusion of interest on State 
and local government small issue qualified private activity 
bonds.''
    --The exception to the interest imputation rule for below-
market loans to qualified continuing care facilities was 
broadened by eliminating the dollar cap and making other 
modifications, effective for calendar years 2005 through 2010, 
with respect to loans made before, on, or after such date. In 
Table 1, this change is reflected in the tax expenditure 
estimate for ``Exemptions from imputed interest rules.''
    --The exemption amounts for the alternative minimum tax 
were increased to: (1) $62,550 in the case of married 
individuals filing a joint return and surviving spouses; (2) 
$42,500 in the case of unmarried individuals other than 
surviving spouses; and (3) $31,275 in the case of married 
individuals filing a separate return, effective for taxable 
years beginning in 2006. In addition, the provision allowing 
nonrefundable personal credits to the full extent of the 
individual's regular and alternative minimum tax, which was 
scheduled to expire for taxable years beginning after December 
31, 2005, was extended for one year. In Table 1, these changes 
to the alternative minimum tax are reflected in the estimates 
of the various tax expenditures whose benefits are limited by 
the alternative minimum tax.
    --The two-year amortization period for geological and 
geophysical expenditures associated with oil and gas 
exploration was extended to five years for certain major 
integrated oil companies, effective for amounts paid or 
incurred after the date of enactment.
    --New requirements were imposed on pooled financing bonds 
as a condition of tax exemption, effective for bonds issued 
after the date of enactment. In Table 1, these new requirements 
are reflected in the estimates of all of the tax expenditure 
provisions that relate to the exclusion of interest on State 
and local government bonds.
    --The income limits on conversions of traditional IRAs to 
Roth IRAs were eliminated, effective for taxable years 
beginning after 2009. In Table 1, this change is reflected in 
the tax expenditure estimate for ``Net exclusion of pension 
contributions and earnings: Individual retirement plans.''

[[Page 10]]

    --The foreign sales corporation and extraterritorial income 
binding contract relief provisions were repealed, effective for 
taxable years beginning after the date of enactment. Thus, the 
tax expenditure for ``Exclusion of extraterritorial income'' is 
no longer listed in Table 1.
    --The wage limitation applicable to the deduction for 
domestic production activities was modified, effective for 
taxable years beginning after the date of enactment.
    --An inflation adjustment was provided for the foreign 
earned income exclusion and adjustments were made to the 
exclusion for housing costs, effective for taxable years 
beginning after 2005. In Table 1, these changes are reflected 
in the tax expenditure estimate for ``Exclusion of income 
earned abroad by U.S. citizens.''
    The Heroes Earned Retirement Opportunities Act (H.R. 1499), 
enacted on May 29, 2006 (Pub. L. No. 109-227), provided that 
for purposes of applying the limit on IRA contributions, an 
individual's gross income is determined without regard to the 
exclusion for combat pay, effective for taxable years beginning 
after 2003.
    The Pension Protection Act of 2006 (H.R. 4), enacted on 
August 17, 2006 (Pub. L. No. 109-280), made changes to the 
rules governing the tax treatment of pensions and IRAs and 
permanently extended the pension and IRA provisions contained 
in the Economic Growth and Tax Relief Reconciliation Act of 
2001. In Table 1, these changes are reflected in the various 
tax expenditure estimates for pensions and IRAs.
    The Pension Protection Act of 2006 also modified two other 
tax expenditures, as follows:
    --An exception was provided for the service area limitation 
rules as they apply to the local furnishing of electric energy 
or gas for bonds issued prior to May 31, 2006, to finance the 
Lake Dorothy hydroelectric project in Alaska, effective on the 
date of enactment. 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 
energy production facilities.''
    --Various rules governing the tax treatment of qualified 
tuition programs, which were scheduled to expire after 2010, 
were permanently extended. In Table 1, these changes are 
reflected in the tax expenditure estimate for ``Exclusion of 
tax on earnings of qualified tuition programs.''
    The Tax Relief and Health Care Act of 2006 (H.R. 6111), 
enacted on December 20, 2006 (Pub. L. No. 109-432), created 
several new tax expenditures:
    --A new tax credit was provided for corporate income earned 
in American Samoa, effective for the first two taxable years of 
a corporation beginning after December 31, 2005. This tax 
expenditure is not listed in Table 1 because the estimated 
revenue loss is below the de minimis amount.
    --A special depreciation allowance was provided for 
cellulosic biomass ethanol plant property, effective for 
property placed in service after the date of enactment and 
before January 1, 2013. This provision is not listed in Table 1 
because the estimated revenue loss is below the de minimis 
amount.
    --Partial expensing was provided for investments in 
advanced mine safety equipment, effective for costs paid or 
incurred after the

[[Page 11]]

date of enactment with respect to property placed in service on 
or before December 31, 2008. This provision is not listed in 
Table 1 because the estimated revenue loss is below the de 
minimis amount.
    --A credit was provided for costs incurred in training 
qualified mine rescue team employees, effective for taxable 
years beginning after December 31, 2005, and before January 1, 
2009. This provision is not listed in Table 1 because the 
estimated revenue loss is below the de minimis amount.
    --A deduction was provided for premiums paid or accrued for 
qualified mortgage insurance, effective for mortgage insurance 
contracts issued on or after January 1, 2007, and amounts paid 
or accrued on such contracts during 2007. This tax expenditure 
is listed in Table 1.
    --A 25-percent exclusion from gross income was provided for 
capital gains from the conservation sale of a qualifying 
mineral or geothermal interest located on eligible Federal 
land, effective for sales occurring on or after the date of 
enactment. This provision is not listed in Table 1 because the 
estimated revenue loss is below the de minimis amount.
    The Tax Relief and Health Care Act of 2006 also extended or 
modified some existing tax expenditures, as follows:
    --The above-the-line deduction for qualified higher 
education expenses, which was scheduled to expire for taxable 
years beginning after December 31, 2005, was extended for two 
years.
    --The new markets tax credit, which was scheduled to expire 
after calendar year 2007, was extended through 2008 and up to 
$3.5 billion in qualified equity investments will be permitted 
in 2008.
    --The option to deduct State and local sales taxes (in lieu 
of State and local income taxes), which was scheduled to expire 
for sales taxes paid after December 31, 2005, was extended for 
two years.
    --The tax credit for increasing research activities, which 
expired on December 31, 2005, was extended for two years (for 
amounts paid or incurred after December 31, 2005, and before 
January 1, 2008). The Act also made certain modifications to 
the research credit.
    --The work opportunity tax credit and the welfare-to-work 
tax credit expired for individuals who began work for an 
employer after December 31, 2005. The Act extended the two 
credits unchanged through 2006 and combined the two credits 
(with changes) for 2007. The combined credit expires for 
individuals who begin work for an employer after December 31, 
2007. The combined credit is listed in Table 1 as the ``Work 
opportunity tax credit.''
    --The election to treat combat pay as earned income for 
purposes of the earned income credit, which was scheduled to 
expire for taxable years ending after December 31, 2006, was 
extended for one year.
    --The tax credit for holders of qualified zone academy 
bonds, which was scheduled to expire for bonds issued after 
December 31, 2005, was extended to include bonds issued through 
December 31, 2007, and arbitrage requirements and spending 
requirements were imposed on all such bonds issued after the 
date of enactment with

[[Page 12]]

respect to allocations of the annual aggregate bond cap for 
calendar years after 2005.
    --The above-the-line deduction for teacher classroom 
expenses, which was scheduled to expire for taxable years 
beginning after December 31, 2005, was extended for two years.
    --The expensing of environmental remediation costs, which 
was scheduled to expire for expenses paid or incurred after 
December 31, 2005, was extended for two years and the 
definition of hazardous substance was expanded to include 
petroleum products.
    --The various tax incentives for investments in the 
District of Columbia, which were scheduled to expire after 
December 31, 2005, were extended for two years.
    --The tax credit for Indian reservation employment, which 
was scheduled to expire for taxable years ending after December 
31, 2005, was extended for two years.
    --Accelerated depreciation for business property on Indian 
reservations, which was scheduled to expire for property placed 
in service after December 31, 2005, was extended for two years.
    --Fifteen-year straight-line cost recovery for qualified 
leasehold improvements and qualified restaurant property, which 
was scheduled to expire for property placed in service after 
December 31, 2005, was extended for two years. In Table 1, this 
is reflected in the tax expenditure estimate for ``Depreciation 
of buildings other than rental housing in excess of alternative 
depreciation system.''
    --The enhanced deduction for charitable contributions of 
scientific property used for research and computer technology 
and equipment, which was scheduled to expire for taxable years 
beginning after December 31, 2005, was extended for two years 
and expanded to include property assembled by the taxpayer. In 
Table 1, these changes are reflected in the tax expenditure 
estimate for the ``Deduction for charitable contributions to 
educational institutions.''
    --The provision allowing certain individuals to establish 
new Archer Medical Savings Accounts (``MSAs''), which was 
scheduled to expire after December 31, 2005, was extended for 
two years. The tax expenditure for Archer MSAs is not listed in 
Table 1 because the estimated revenue loss is below the de 
minimis amount.
    --The suspension of the 100-percent-of-net-income 
limitation on percentage depletion for oil and natural gas from 
marginal properties, which was scheduled to expire for taxable 
years after December 31, 2005, was extended for two years.
    --The placed-in-service date for additional first-year 
depreciation for Gulf Opportunity Zone (``GO zone'') property, 
which was scheduled to expire for property placed in service 
after December 31, 2008, was extended for progress expenditures 
made prior to 2010 for certain structures.
    --The tax credits for electricity production from certain 
renewable resources, which were generally scheduled to expire 
for property placed in service after December 31, 2007, were 
extended for one year.
    --The authority to issue clean renewable energy bonds, 
which was scheduled to expire for bonds issued after December 
31, 2007, was extended to include bonds issued through December 
31, 2008, and the national limitation on the issuance of such 
bonds was increased by $400 million. In Table 1, this change is 
reflected in the

[[Page 13]]

tax expenditure estimate for ``Tax credit for holders of clean 
renewable energy bonds.''
    --The advanced coal credit was modified by changing the 
performance requirement relating to the removal of sulfur 
dioxide from subbituminous coal, effective for advanced coal 
project certification applications submitted after October 2, 
2006. In Table 1, this modification is reflected in the tax 
expenditure estimate for the ``Energy credit.''
    --The deduction for expenditures on energy efficient 
commercial building property, which was scheduled to expire for 
property placed in service after December 31, 2007, was 
extended for one year.
    --The tax credit for the construction of energy efficient 
new homes, which was scheduled to expire for homes purchased 
after December 31, 2007, was extended for one year.
    --The tax credit for the residential purchase of qualified 
photovoltaic and solar water heating property, which was 
scheduled to expire for property placed in service after 
December 31, 2007, was extended for one year.
    --The business solar and fuel cell energy credit, which was 
scheduled to expire for property purchased after December 31, 
2007, was extended for one year. In Table 1, this change is 
reflected in the tax expenditure estimate for ``Energy 
credit.''
    --The tax credit for producing fuel from a non-conventional 
source was modified by repealing the phaseout of the coke 
credit, which was based on the reference price of oil. This 
repeal of the phaseout is estimated to have no effect on the 
tax expenditure estimate for the ``Tax credit for producing 
fuel from a non-conventional source.''
    --Certain modifications were made to the rules governing 
health savings accounts (``HSAs''), with varying effective 
dates. In Table 1, all of these modifications are reflected in 
the tax expenditure estimate for ``Health savings accounts.''
    --The deduction for income attributable to domestic 
production activities (sec. 199) was expanded to include income 
attributable to production activities in Puerto Rico, effective 
for the first two taxable years beginning after December 31, 
2005, and before January 1, 2008.
    --The tax exclusion for the earnings of certain 
environmental settlement funds established in consent decrees 
for the sole purpose of resolving claims under the 
Comprehensive Environmental Response, Compensation, and 
Liability Act, which was scheduled to expire for funds 
established after December 31, 2010, was made permanent.
    --The TIPRA changes to the rules governing qualified 
veterans' mortgage bonds, including changes to the definition 
of an eligible veteran, and new State volume limits for 
qualified veterans' mortgage bonds issued by the States of 
Alaska, Oregon, and Wisconsin, which were scheduled to expire 
after 2010, were made permanent. In Table 1, these changes 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 reduced rate of tax on gains from the sale of certain 
self-created musical works, which was scheduled to expire for 
works

[[Page 14]]

sold or exchanged after December 31, 2010, was made permanent. 
This tax expenditure is not listed in Table 1 because the 
estimated revenue loss is below the de minimis amount.
    --The exception to the tax-exempt bond arbitrage 
restrictions for certain bonds secured by income from 
investments in the Texas Permanent University Fund, which was 
codified and extended by TIPRA, was made permanent. In Table 1, 
this change is reflected in the tax expenditure for ``Exclusion 
of interest on State and local government qualified private 
activity bonds for private non-profit and qualified public 
educational facilities.''
    --The rules applicable to loans financed with qualified 
veterans' mortgage bonds were modified to permit the financing 
of mortgages to veterans without regard to the first-time home 
buyer requirement. In Table 1, this change is reflected in the 
tax expenditure estimate for ``Exclusion of interest on State 
and local government private activity bonds for owner-occupied 
housing.''
    --Certain eligibility requirements for the exclusion of 
capital gains on sales of principal residences were modified 
for specified employees of the intelligence community, 
effective for sales or exchanges after the date of enactment 
and before January 1, 2011.
    --The deferral of recognition of gain on sales of property 
to comply with certain conflict of interest requirements was 
extended to judicial officers who receive a certificate of 
divestiture from the Judicial Conference of the United States. 
The provision applies to sales after the date of enactment. 
This tax expenditure is not listed in Table 1 because the 
estimated revenue loss is below the de minimis amount.
    --The definition of qualified railroad track expenditures 
was modified for purposes of the tax credit for certain 
expenditures on railroad track maintenance, effective for 
expenditures paid or incurred during taxable years beginning 
after December 31, 2004, and before January 1, 2008.
    --The broadening of the exception to the interest 
imputation rule for below-market loans to qualified continuing 
care facilities, which was scheduled to expire after 2010, was 
made permanent. In Table 1, this change is reflected in the tax 
expenditure estimate for ``Exemptions from imputed interest 
rules.''
    The Small Business and Work Opportunity Tax Act of 2007 
(H.R. 2206), enacted on May 25, 2007 (Pub. L. No. 110-28), made 
a number of changes to existing tax expenditures:
    --The work opportunity tax credit, which was scheduled to 
expire for individuals who begin work for an employer after 
December 31, 2007, was extended for 44 months (to include 
individuals who begin work for an employer before September 1, 
2011), and other changes were made to expand the targeted 
groups of employees, effective for individuals who begin work 
for an employer after the date of enactment.
    --The $100,000 limit on the expensing of depreciable 
tangible personal property by a small business was increased to 
$125,000 for taxable years beginning in 2007 through 2010, and 
the $125,000 limit was indexed for inflation in taxable years 
beginning after 2007 and before 2011. In Table 1, these changes 
are reflected in the tax expenditure estimate for ``Expensing 
under section 179 of depreciable business property.''

[[Page 15]]

    --The minimum wage for purposes of the employer tax credit 
for Social Security taxes paid with respect to employee cash 
tips was increased from $2.13 per hour to $5.15 per hour, 
effective for tips received for services performed after 
December 31, 2006.
    --The alternative minimum tax was modified by providing 
that alternative minimum tax liability may be offset by the 
work opportunity tax credit and the employer tax credit for 
Social Security taxes paid with respect to employee cash tips, 
effective for taxable years beginning after December 31, 2006. 
In Table 1, this change is reflected in the tax expenditure 
estimates for the ``Work opportunity tax credit'' and the ``Tax 
credit for employer-paid FICA taxes on tips.''
    --The increased expensing limit for Gulf Opportunity Zone 
property, which was scheduled to expire for property placed in 
service after December 31, 2007, was extended to include 
property placed in service in 2008. This tax expenditure is not 
listed in Table 1 because the estimated revenue loss is below 
the de minimis amount.
    --The placed-in-service dates for the enhanced low-income 
housing credit for property located in the GO Zone, the Rita GO 
Zone, and the Wilma GO Zone, which were scheduled to end after 
2008, were extended for an additional two years. In Table 1, 
this extension is reflected in the tax expenditure estimate for 
``Tax credit for low-income housing.''
    --The qualified mortgage bond rules were modified to 
provide that a qualified GO Zone repair or reconstruction loan 
is treated as a qualified rehabilitation loan. In Table 1, this 
change is reflected in the tax expenditure estimate for 
``Exclusion of interest on State and local government private 
activity bonds for owner-occupied housing.''

Expiring Tax Expenditure Provisions

    A number of tax expenditure provisions expired in 2006 or 
are scheduled to expire in 2007:
    --The tax credit for qualified electric vehicles expired 
for property placed in service after December 31, 2006. This 
tax expenditure is no longer listed in Table 1.
    --The election to treat combat pay as earned income for 
purposes of the earned income credit is scheduled to expire for 
taxable years ending after December 31, 2007.
    --The tax credit for increasing research activities is 
scheduled to expire for amounts paid or incurred after December 
31, 2007.
    --The tax credit for Indian reservation employment is 
scheduled to expire for taxable years ending after December 31, 
2007.
    --The tax credit for certain expenditures on railroad track 
maintenance is scheduled to expire for taxable years beginning 
after December 31, 2007.
    --The above-the-line deduction for teacher classroom 
expenses is scheduled to expire for taxable years beginning 
after December 31, 2007.
    --The deduction for premiums on qualified mortgage 
insurance is scheduled to expire for amounts paid or accrued on 
qualified contracts after December 31, 2007.

[[Page 16]]

    --The option to deduct State and local sales taxes (in lieu 
of State and local income taxes) is scheduled to expire for 
sales taxes paid after December 31, 2007.
    --Fifteen-year straight-line cost recovery for qualified 
leasehold improvements and qualified restaurant property is 
scheduled to expire for property placed in service after 
December 31, 2007. In Table 1, this is reflected in the tax 
expenditure estimate for ``Depreciation of buildings other than 
rental housing in excess of alternative depreciation system.''
    --Seven-year cost recovery for certain motorsports 
racetrack property is scheduled to expire for property placed 
in service after December 31, 2007. In Table 1, this is 
reflected in the tax expenditure estimate for ``Depreciation of 
buildings other than rental housing in excess of alternative 
depreciation system.''
    --Accelerated depreciation for business property on Indian 
reservations is scheduled to expire for property placed in 
service after December 31, 2007.
    --The enhanced charitable deduction for contributions of 
food inventory is scheduled to expire for contributions made 
after December 31, 2007. In Table 1, this is reflected in the 
tax expenditure estimate for ``Deduction for charitable 
contributions, other than for education and health.''
    --The enhanced charitable deduction for contributions of 
book inventories to public schools is scheduled to expire for 
contributions made after December 31, 2007. In Table 1, this is 
reflected in the tax expenditure estimate for ``Deduction for 
charitable contributions to educational institutions.''
    --The enhanced deduction for qualified computer 
contributions to schools is scheduled to expire for 
contributions made in taxable years beginning after December 
31, 2007. In Table 1, this is reflected in the tax expenditure 
estimate for ``Deduction for charitable contributions to 
educational institutions.''
    --The expensing of environmental remediation costs is 
scheduled to expire for expenses paid or incurred after 
December 31, 2007.
    --The deduction for income attributable to domestic 
production activities in Puerto Rico is scheduled to expire for 
taxable years beginning after December 31, 2007.
    --After December 31, 2007, no new contributions may be made 
to Archer MSAs except by individuals who previously made Archer 
MSA contributions and by employees of small employers with 
prior Archer MSA participation. The tax expenditure for Archer 
medical savings accounts is not listed in Table 1 because the 
estimated revenue loss is below the de minimis amount.
    --The above-the-line deduction for qualified higher 
education expenses is scheduled to expire for taxable years 
beginning after December 31, 2007.
    --The tax credit for the purchase of qualified energy 
efficiency improvements to existing homes is scheduled to 
expire for property placed in service after December 31, 2007.
    --The tax credit for the production of energy-efficient 
appliances is scheduled to expire for appliances produced after 
December 31, 2007.
    --The tax credit for producing fuels from a non-
conventional source expires for fuel sold after December 31, 
2007.

[[Page 17]]

    --The higher deduction limit for charitable donations of 
property interests made for conservation purposes is scheduled 
to expire for contributions made in taxable years after 
December 31, 2007.
    --The deferral of gain from the disposition of electric 
transmission property to implement Federal Energy Regulation 
Commission restructuring policy is scheduled to expire for 
taxable years beginning after December 31, 2007.
    --The suspension of the 100-percent-of-net-income 
limitation on percentage depletion for oil and gas from 
marginal properties is scheduled to expire for taxable years 
beginning after December 31, 2007.
    --The tax credit for holders of qualified zone academy 
bonds is scheduled to expire for bonds issued after December 
31, 2007.
    --The various tax incentives for investments in the 
District of Columbia are scheduled to expire after December 31, 
2007.
    --The tax credit for corporate income earned in American 
Samoa is scheduled to expire for taxable years beginning after 
December 31, 2007. This 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 7-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 
2006-2012. The Joint Committee staff estimates cover the 
current fiscal year and the succeeding four fiscal years, i.e., 
fiscal years 2007-2011.
    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 2007 through 2011. 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 2006 through 2012.
    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.

[[Page 18]]

    The following tax provisions are viewed as tax expenditures 
by the Joint Committee staff but are not listed in Table 1 
because the estimated revenue losses for fiscal years 2007 
through 2011 are below the de minimis amount ($50 million):

Energy

--Deferral of gain from the disposition of electric 
        transmission property to implement Federal Energy 
        Regulatory Commission restructuring policy
--Expensing of tertiary injectants
--Tax credit for production of electricity from qualifying 
        advanced nuclear power facilities
--Tax credit for the residential purchase of qualified 
        photovoltaic and solar water heating property
--Tax credit for the construction of energy-efficient new homes
--Five-year carryback period for certain net operating losses 
        of electric utility companies
--Special depreciation allowance for cellulosic biomass ethanol 
        plant property
--Partial expensing of investments in advanced mine safety 
        equipment
--Tax credit for costs incurred in training qualified mine 
        rescue team employees

Natural Resources and Environment

--Amortization of certified pollution control facilities
--Partial exclusion from gross income for capital gains from 
        the conservation sale of a qualifying mineral or 
        geothermal interest located on eligible Federal land

Agriculture

--Cash accounting for 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
--Exclusion of investment income from structured settlement 
        arrangements

Insurance companies

--Special alternative tax on small property and casualty 
        insurance companies

Other business and commerce

--Deferral of gain on sales of property to comply with 
        conflict-of-interest requirements
--Exclusion of income from discharge of indebtedness incurred 
        in connection with qualified real property
--Partial expensing of Gulf Opportunity Zone clean-up costs
--Five-year carryback period for losses attributable to various 
        expenses related to Hurricane Katrina
--Reduced rates of tax on gains from the sale of self-created 
        musical works

[[Page 19]]

--Amortization of expenses for the creation or acquisition of 
        musical compositions
--Tax credit for corporate income earned in American Samoa

Community and Regional Development

--Tax credit for holders of Gulf Tax Credit Bonds

Education and Training

--Exclusion of interest on educational savings bonds

Social services

--Exclusion of restitution payments received by victims of the 
        Nazi regime and the victims' heirs and estates

Health

--Archer medical savings accounts

Income security

--Tax credit for new retirement plan expenses of small 
        businesses
--Exclusion of cancellation of indebtedness income of Hurricane 
        Katrina victims
--Tax credit for the elderly and disabled


[[Page (20)]]



                  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.\13\
---------------------------------------------------------------------------
    \13\ 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 tax expenditure estimates in this report are based on 
the January 2007 Congressional Budget Office revenue baseline 
and Joint Committee staff projections of the gross income, 
deductions, and expenditures of individuals and corporations 
for calendar years 2006-2011. 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 in

[[Page 21]]

come 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.
Comparisons with Treasury Department
    The Joint Committee staff and the Treasury use differing 
methodologies for the estimation of tax expenditures. Thus, the 
estimates in Table 1 are not necessarily comparable with the 
estimates prepared by the Treasury.
    Under the Joint Committee staff methodology, each tax 
expenditure is measured by the difference between tax liability 
under present law and the tax liability that would result if 
the tax expenditure provision were repealed and taxpayers were 
allowed to take advantage of any of the remaining tax 
expenditure provisions that apply to the income or the expenses 
associated with the repealed tax expenditure. For example, the 
tax expenditure provision for the exclusion of employer-paid 
health insurance is measured by the difference between tax 
liability under present law and the tax

[[Page 22]]

liability that would result if the exclusion were repealed and 
taxpayers were allowed to claim the next best tax treatment for 
the previously excluded employer-paid health insurance. This 
next best tax treatment could be the inclusion of the employer-
paid health insurance as an itemized medical deduction on 
Schedule A.\14\
---------------------------------------------------------------------------
    \14\ If the exclusion were repealed, the value of the employer-paid 
health insurance would be included in income and taxpayers would be 
treated as having purchased the insurance themselves. Thus, the 
insurance expense would be deductible as an itemized medical expense on 
Schedule A, subject to the itemized medical deduction floor (7.5 
percent of the taxpayer's adjusted gross income).
---------------------------------------------------------------------------
    Under the Treasury methodology, each tax expenditure is 
measured by the difference between tax liability under present 
law and the tax liability that would result if the tax 
expenditure provision were repealed and taxpayers were 
prohibited from taking advantage of any of the remaining tax 
expenditure provisions that apply to the income or the expenses 
associated with the repealed tax expenditure. For example, the 
tax expenditure provision for the exclusion for employer-paid 
health insurance is measured by the difference between tax 
liability under present law and the tax liability that would 
result if the exclusion were repealed and taxpayers were 
required to include all of the employer-paid health insurance 
in income, with no offsetting deductions (i.e., no 
deductibility on Schedule A).
    The Joint Committee staff and the Treasury estimates of tax 
expenditures may also differ as a result of differing data 
sources and differences in baseline projections of incomes and 
expenses. The Treasury's tax expenditure estimates are based on 
the Administrations economic forecast. The Joint Committee 
staff estimates are based on the economic forecast prepared by 
the Congressional Budget Office.


[[Page (23)]]



                     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.

[[Page 24]]



                                     Table 1.--Tax Expenditure Estimates By Budget Function, Fiscal Years 2007-2011
                                                                  [Billion of dollars]
--------------------------------------------------------------------------------------------------------------------------------------------------------
                                                                   Corporations                                  Individuals
                     Function                     --------------------------------------------------------------------------------------------   Total
                                                     2007     2008     2009     2010     2011     2007     2008     2009     2010      2011     2007-11
--------------------------------------------------------------------------------------------------------------------------------------------------------
National Defense
  Exclusion of benefits and allowances to Armed    .......  .......  .......  .......  .......      3.0      3.2      3.3      3.4        3.9       16.8
   Forces personnel..............................
  Exclusion of military disability benefits......  .......  .......  .......  .......  .......      0.1      0.1      0.1      0.1        0.1        0.5
  Deduction for overnight-travel expenses of       .......  .......  .......  .......  .......    (\1\)    (\1\)    (\1\)    (\1\)        0.1        0.2
   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      0.7      0.7      0.8        0.8        3.6
   employees abroad..............................
  Deferral of active income of controlled foreign      5.8      6.4      7.0      7.5      7.9  .......  .......  .......  .......  .........       34.6
   corporations..................................
  Inventory property sales source rule exception.      6.4      6.6      6.8      7.0      7.2  .......  .......  .......  .......  .........       34.0
  Deferral of certain active financing income....      2.3      2.6      0.8  .......  .......  .......  .......  .......  .......  .........        5.7
General Science, Space, and Technology
  Tax credit for increasing research activities..      5.0      3.2      1.9      1.5      1.0      0.1      0.1    (\1\)    (\1\)      (\1\)       12.8
  Expensing of research and experimental               1.3      2.2      4.6      5.8      6.2    (\1\)    (\1\)      0.1      0.1        0.1       20.9
   expenditures..................................
Energy
  Expensing of exploration and development costs:
    Oil and gas..................................      1.1      0.8      0.6      0.5      0.5    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        3.5
    Other fuels..................................    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.2
  Excess of percentage over cost depletion:
    Oil and gas..................................      1.1      1.2      1.2      1.2      1.2    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        5.9
    Other fuels..................................      0.1      0.1      0.1      0.1      0.1    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.7

[[Page 25]]

 
  Tax credit and deduction for small refiners        (\1\)    (\1\)    (\1\)    (\1\)    (\1\)  .......  .......  .......  .......  .........        0.1
   with capital costs associated with EPA sulfur
   regulation compliance.........................
  Tax credit for enhanced oil recovery costs.....      0.1    (\1\)    (\1\)    (\1\)    (\1\)      0.1    (\1\)    (\1\)    (\1\)      (\1\)        0.3
  Tax credit for producing fuels from a non-           3.7      1.4    (\1\)    (\1\)    (\1\)      0.8      0.3    (\1\)    (\1\)      (\1\)        6.2
   conventional source...........................
  Tax credits for alcohol fuels (\2\)............    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)  .......  .......  .......  .......  .........        0.2
  Tax credits for biodiesel fuels (\3\)..........      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).....................      0.1      0.1    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.3
  Tax credits for electricity production from          1.0      1.5      1.8      1.6      1.4      0.1      0.1      0.1      0.1        0.1        7.8
   renewable resources...........................
  Tax credit for holders of clean renewable          (\1\)    (\1\)      0.1      0.1      0.1    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.3
   energy bonds..................................
  Tax credits for investments in clean coal power      0.1      0.1      0.2      0.2      0.3  .......  .......  .......  .......  .........        0.8
   generation facilities.........................
  Expensing of the cost of property used in the      (\4\)      0.2      0.5      0.7      0.6  .......  .......  .......  .......  .........        2.1
   refining of liquid fuels......................
  Amortization of geological and geophysical           0.1      0.2      0.2      0.2      0.1    (\1\)      0.1      0.1      0.1      (\1\)        1.1
   expenditures associated with oil and gas
   exploration...................................
  Deduction for expenditures on energy-efficient     (\1\)      0.1    (\1\)    (\4\)    (\4\)    (\1\)      0.1    (\1\)    (\4\)      (\4\)        0.2
   commercial building property..................
  Tax credit for the purchase of qualified energy  .......  .......  .......  .......  .......      0.3      0.2  .......  .......  .........        0.6
   efficiency improvements to existing homes.....
  Tax credit for the production of energy-             0.1    (\1\)  .......  .......  .......  .......  .......  .......  .......  .........        0.2
   efficient appliances..........................
  Tax credits for alternative technology vehicles      0.1    (\1\)    (\1\)    (\1\)    (\1\)      0.2      0.2      0.2      0.1      (\1\)        0.9

[[Page 26]]

 
  Tax credit for clean-fuel vehicle refueling        (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.1
   property......................................
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\)        0.5
   nonfuel minerals..............................
  Excess of percentage over cost depletion,            0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1      0.1        0.1        1.1
   nonfuel 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      0.5      0.5      0.5        0.6        3.5
   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         0.6      0.7      0.8      0.8      0.9  .......  .......  .......  .......  .........        3.8
   reserve funds.................................
  Exclusion of contributions in aid of               (\1\)    (\1\)    (\1\)    (\1\)    (\1\)  .......  .......  .......  .......  .........        0.2
   construction for water and sewer utilities....
  Tax exclusion for earnings of certain              (\1\)    (\1\)    (\1\)    (\1\)    (\1\)  .......  .......  .......  .......  .........        0.1
   environmental settlement funds................
  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\)        0.1        0.2
   expenditures..................................
  Expensing of fertilizer and soil conditioner       (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.2      0.1      0.1      0.1        0.1        0.6
   costs.........................................

[[Page 27]]

 
  Expensing of the costs of raising dairy and        (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1      0.1      0.1      0.1        0.1        0.5
   breeding cattle...............................
  Exclusion of cost-sharing payments.............    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.1
  Exclusion of cancellation of indebtedness        .......  .......  .......  .......  .......      0.1      0.1      0.1      0.1        0.1        0.5
   income of farmers.............................
  Income averaging for farmers and fisherman.....  .......  .......  .......  .......  .......    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.1
  Five-year carryback period for net operating       (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.2
   losses attributable to farming................
Commerce and Housing
  Financial institutions:
    Exemption of credit union income.............      1.6      1.7      1.8      1.9      1.9  .......  .......  .......  .......  .........        8.9
  Insurance companies:
    Exclusion of investment income on life             2.5      2.6      2.7      2.7      2.8     26.1     26.8     27.5     28.2       28.9      150.9
     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        2.0      2.0      2.1      2.2      2.3  .......  .......  .......  .......  .........       10.7
     reserves....................................
    Deduction of unpaid property loss reserves         3.4      3.5      3.6      3.6      3.7  .......  .......  .......  .......  .........       17.8
     for property and casualty insurance
     companies...................................
    Special deduction for Blue Cross and Blue          1.0      1.0      1.0      1.1      1.1  .......  .......  .......  .......  .........        5.2
     Shield companies............................
  Tax exemption for certain small insurance            0.1      0.1      0.1      0.1      0.1  .......  .......  .......  .......  .........        0.3
   companies.....................................
  Housing:
    Deduction for mortgate interest on owner-      .......  .......  .......  .......  .......     73.7     79.9     85.2     90.5      101.0      430.2
     occupied residences.........................
    Deduction for property taxes on owner-         .......  .......  .......  .......  .......     16.8     14.3     14.2     13.9       27.9       87.1
     occupied residences.........................
    Exclusion of capital gains on sales of         .......  .......  .......  .......  .......     28.5     29.0     30.1     31.1       34.9      153.5
     principal residences........................
    Exclusion of interest on State and local           0.4      0.4      0.4      0.4      0.4      0.9      1.0      1.1      1.1        1.2        7.4
     government qualified private activity bonds
     for owner-occupied housing..................

[[Page 28]]

 
    Exclusion of interest on State and local           0.2      0.2      0.2      0.2      0.2      0.5      0.5      0.6      0.6        0.6        4.0
     government qualified private activity bonds
     for rental housing..........................
    Depreciation of rental housing in excess of        0.4      0.5      0.5      0.6      0.7      3.9      4.4      4.9      5.4        6.0       27.4
     alternative depreciation system.............
    Tax credit for low-incoming housing..........      4.4      4.6      4.9      5.3      5.7      0.7      0.7      0.7      0.8        0.8       28.7
    Tax credit for rehabilitation of historic          0.3      0.3      0.3      0.4      0.4      0.1      0.1      0.2      0.2        0.2        2.2
     structures..................................
    Tax credit for rehabilitation of structures,       (1)      (1)      (1)      1.0      1.0      0.1      0.1      0.1      0.2        0.2        0.8
     other than historic structures..............
    Tax credit for Gulf Opportunity Zone               0.1  .......  .......  .......  .......      0.1  .......  .......  .......  .........        0.2
     employers providing in-kind lodging for
     employees and income exclusion for the
     employees...................................
    Deduction for premiums for qualified mortgage  .......  .......  .......  .......  .......      (1)      0.1      (1)      (1)        (1)        0.1
     insurance...................................
  Other business and commerce:
    Reduced rates of tax on dividends and long-    .......  .......  .......  .......  .......    127.1    127.9    131.0    146.6       99.3      631.9
     term capital gains..........................
    Exclusion of capital gains at death..........  .......  .......  .......  .......  .......     51.9     53.7     57.5     60.1       56.7      279.9
    Carryover basis of capital gains on gifts....  .......  .......  .......  .......  .......      5.5      5.7      5.9      6.1        6.0       29.2
    Deferral of gain on non-dealer installment         3.3      1.7      0.9      0.8      1.0      2.3      1.2      0.6      0.5        0.9       13.2
     sales.......................................
    Deferral of gain on like-kind exchanges......      3.3      3.3      3.3      3.3      3.4      1.0      1.0      1.0      1.1        1.0       21.7
    Depreciation of buildings other than rental        0.6      0.7      0.7      0.7      0.7      0.6      0.7      0.7      0.7        0.7        6.7
     housing in excess of alternative
     depreciation system.........................

[[Page 29]]

 
    Depreciation of equipment in excess of the         1.8      6.2     11.1     16.5     21.4     -0.3      0.8      2.3      4.1        5.6       69.6
     alternative depreciation system.............
    Expensing under section 179 of depreciable         0.4      0.3      0.2      0.2      0.0      2.9      2.2      1.6      1.7       -0.1        9.5
     business property...........................
    Amortization of business startup costs.......      (1)      (1)      (1)      (1)      (1)      0.7      0.8      0.8      0.9        0.9        4.1
    Reduced rates on first $10,000,000 of              3.5      3.5      3.5      3.4      3.4  .......  .......  .......  .......  .........       17.3
     corporate taxable income....................
    Exemptions from imputed interest rules.......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.4      0.4      0.4      0.5        0.5        2.2
    Expensing of magazine circulation                (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.1
     expenditures................................
    Special rules for magazines, paperback book,     (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.2
     and record returns..........................
    Completed contract rules.....................      0.4      0.4      0.5      0.6      0.6    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        2.5
    Cash accounting, other than agriculture......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.8      0.8      0.9      0.9        1.0        4.4
    Exclusion of interest on State and local           0.1      0.1      0.1      0.1      0.2      0.3      0.3      0.4      0.4        0.4        2.5
     government small-issue qualified private
     activity bonds..............................
    Exception from net operating loss limitations      0.5      0.5      0.5      0.5      0.5  .......  .......  .......  .......  .........        2.5
     for corporations in bankruptcy proceedings..
    Tax credit for employer-paid FICA taxes on         0.2      0.3      0.3      0.3      0.3      0.2      0.2      0.2      0.2        0.2        2.5
     tips........................................
    Deduction of certain film and television           0.1      0.1    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.4
     production costs............................
    Deduction for income attributable to domestic      3.9      5.5      5.9      7.4      8.8      1.3      1.8      2.0      2.6        3.4       42.6
     production activities.......................
    Tax credit for the cost of carrying tax-paid     (\1\)    (\1\)    (\1\)    (\1\)    (\1\)  .......  .......  .......  .......  .........        0.1
     distilled spirits in wholesale inventories..
    Additional first-year depreciation for Gulf        0.9      0.4      0.1      0.0     -0.1      0.4      0.2      0.0      0.0        0.0        1.8
     Opportunity Zone property...................
    Tax credit for employers for retention of        (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)  .........        0.1
     employees affected by Hurricanes Katrina,
     Rita, and Wilma.............................

[[Page 30]]

 
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..................................
    Tax credit for certain expenditures on             0.1      0.1      0.1    (\1\)    (\1\)  .......  .......  .......  .......  .........        0.3
     railroad track maintenance..................
    Deferral of tax on capital construction funds      0.1      0.1      0.1      0.1      0.1  .......  .......  .......  .......  .........        0.5
     of shipping companies.......................
    Exclusion of employer-paid transportation      .......  .......  .......  .......  .......      4.7      4.8      4.9      5.1        5.2       24.7
     benefits....................................
Community and Regional Development
  New York City Liberty Zone tax incentives......      0.1      0.1    (\1\)    (\1\)    (\1\)      0.1      0.1      0.1      0.1        0.1        0.7
  Empowerment zone tax incentives................      0.2      0.2      0.2      0.2      0.1      0.4      0.4      0.5      0.3        0.1        2.6
  Renewal community tax incentives...............      0.3      0.4      0.4      0.2    (\1\)      0.4      0.4      0.4      0.2      (\1\)        4.3
  New markets tax credit.........................      0.3      0.4      0.4      0.4      0.3      0.4      0.5      0.5      0.5        0.4        4.2
  District of Columbia tax incentives............    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1      0.1      0.1      0.1        0.2        0.6
  Expensing of environmental remediation costs         0.1    (\1\)    (\1\)    (\1\)    (\1\)      0.2    (\1\)    (\4\)    (\4\)      (\4\)        0.1
   (``Brownfields'').............................
  Accelerated depreciation for business property       0.2      0.2    (\1\)     -0.1     -0.1      0.1      0.1    (\1\)    (\4\)        0.1        0.6
   on Indian reservations........................
  Tax credit for Indian reservation employment...    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.1
  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.....

[[Page 31]]

 
  Exclusion of interest on State and local             0.3      0.3      0.4      0.4      0.4      0.8      0.9      0.9      0.9        1.0        6.2
   government qualified private activity bonds
   for private airports, docks, and mass-
   communting facilities.........................
Education, Training, Employment, and Social
 Services
  Education and training:
    Tax credits for tuition for post-secondary     .......  .......  .......  .......  .......      3.1      4.4      4.9      4.7        5.5       22.6
     education...................................
    Deduction for interest of student loans......  .......  .......  .......  .......  .......      0.9      0.9      0.9      1.0        0.5        4.3
    Deduction for higher education expenses......  .......  .......  .......  .......  .......      2.2      0.6  .......  .......  .........        2.9
    Exclusion of earnings of Coverdell education   .......  .......  .......  .......  .......      0.1      0.1      0.1      0.1        0.1        0.5
     savings accounts............................
    Exclusion of tax on earnings of qualified      .......  .......  .......  .......  .......      0.6      0.7      0.9      1.0        1.2        4.4
     tuition programs............................
    Exclusion of scholarship and fellowship        .......  .......  .......  .......  .......      1.6      1.7      1.8      1.9        2.0        9.0
     income......................................
    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      0.8      0.9      0.9        0.2        3.7
     assistance benefits.........................
    Exclusion of employer-provided tuition         .......  .......  .......  .......  .......      0.2      0.2      0.2      0.2        0.2        1.1
     reduction benefits..........................
    Parental personal exemption for students age   .......  .......  .......  .......  .......      0.4      0.1      0.1    (\1\)        0.4        1.0
     19 to 23....................................
    Exclusion of interest on State and local           0.1      0.1      0.1      0.1      0.1      0.3      0.3      0.4      0.4        0.4        2.5
     government qualified private activity bonds
     for student loans...........................
    Exclusion of interest on State and local           0.4      0.5      0.5      0.5      0.6      1.1      1.2      1.3      1.4        1.4        8.9
     government qualified private activity bonds
     for private nonprofit and qualified public
     educational facilities......................

[[Page 32]]

 
    Tax credit for holders of qualified zone           0.1      0.1      0.1      0.1      0.1  .......  .......  .......  .......  .........        0.6
     academy bonds...............................
    Deduction for charitable contributions to          0.7      0.8      0.8      0.8      0.8      5.9      6.2      6.5      6.9        7.3       36.8
     educational institutions....................
    Above-the-line deduction for teacher           .......  .......  .......  .......  .......      0.2      0.1  .......  .......  .........        0.3
     classroom expenses..........................
  Employment:
    Exclusion of employee meals and lodging        .......  .......  .......  .......  .......      0.9      0.9      1.0      1.0        1.0        5.0
     (other than military).......................
    Exclusion of benefits provided under           .......  .......  .......  .......  .......     30.0     33.6     36.8     40.3       44.8      185.5
     cafeteria plans \5\.........................
    Exclusion of housing allowances for ministers  .......  .......  .......  .......  .......      0.6      0.6      0.6      0.7        0.7        3.2
    Exclusion of miscellaneous fringe benefits...  .......  .......  .......  .......  .......      6.6      7.0      7.2      7.5        8.4       36.7
    Exclusion of employee awards.................  .......  .......  .......  .......  .......      0.2      0.2      0.2      0.2        0.2        0.9
    Exclusion of income earned by voluntary        .......  .......  .......  .......  .......      2.0      2.0      2.1      2.1        2.2       10.4
     employees' beneficiary associations.........
    Special tax provisions for employee stock          0.8      0.9      1.0      1.1      1.2      0.3      0.3      0.3      0.3        0.3        6.5
     ownership plans (ESOPs).....................
    Work opportunity tax credit..................      0.4      0.5      0.5      0.6      0.5      0.1      0.1      0.1      0.1        0.1        3.1
    Deferral of taxation on spread on acquisition  .......  .......  .......  .......  .......      0.4      0.4      0.3      0.2        0.3        1.5
     of stock under incentive stock option plans
     and employee stock purchase plans \6\.......
  Social services:
    Tax credit for children under age 17 \7\.....  .......  .......  .......  .......  .......     45.0     44.8     44.8     44.8       21.9      201.3

[[Page 33]]

 
    Tax credit for child and dependent care and    .......  .......  .......  .......  .......      3.0      2.6      2.6      2.5        2.5       13.2
     exclusion of employer-provided child care
     \8\.........................................
    Tax credit for employer-provided dependent       (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.2
     care........................................
    Exclusion of certain foster care payments....  .......  .......  .......  .......  .......      0.6      0.7      0.7      0.8        0.8        3.7
    Adoption credit and employee adoption          .......  .......  .......  .......  .......      0.7      0.7      0.7      0.8        0.2        3.1
     benefits exclusion..........................
    Deduction for charitable contributions, other      1.8      1.9      1.9      1.9      1.9     32.0     33.6     35.3     37.1       39.6      187.0
     than for education and health...............
    Tax credit for disabled access expenditures..    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.3
Health
  Exclusion of employer contributions for health   .......  .......  .......  .......  .......    105.7    116.5    126.0    135.6      144.7      628.5
   care, health insurance premiums, and long-term
   care insurance premiums \9\...................
  Exclusion of medical care and TRICARE medical    .......  .......  .......  .......  .......      1.6      2.1      2.2      2.3        2.5       10.7
   insurance for military dependents, retirees,
   and retiree dependents not enrolled in
   Medicare......................................
  Exclusion of health insurance benefits for       .......  .......  .......  .......  .......      0.8      1.2      1.3      1.4        1.7        6.4
   military retirees and retiree dependents
   enrolled in Medicare..........................
  Deduction for health insurance premiums and      .......  .......  .......  .......  .......      3.8      4.4      4.9      5.3        5.9       24.3
   long-term care insurance premiums by the self-
   employed......................................
  Deduction for medical expenses and long-term     .......  .......  .......  .......  .......      8.4      9.5     10.8     12.4       16.7       57.9
   care expenses.................................
  Exclusion of workers' compensation benefits      .......  .......  .......  .......  .......      7.5      8.1      8.8      9.5       10.3       44.2
   (medical benefits)............................
  Health savings accounts........................  .......  .......  .......  .......  .......      0.3      0.6      0.9      1.2        1.6        4.6
  Exclusion of interest on State and local             0.7      0.7      0.8      0.8      0.9      1.8      1.9      2.0      2.1        2.2       14.0
   government qualified private activity bonds
   for private nonprofit hospital facilities.....

[[Page 34]]

 
  Deduction for charitable contributions to            0.9      0.9      0.9      0.9      0.9      4.0      4.3      4.5      4.7        5.0       27.0
   health organizations..........................
  Tax credit for orphan drug research............      0.3      0.3      0.3      0.3      0.4    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        1.6
  Tax credit for purchase of health insurance by   .......  .......  .......  .......  .......      0.2      0.2      0.2      0.2        0.2        1.0
   certain displaced persons.....................
Medicare
  Exclusion of Medicare benefits:
    Hospital insurance (Part A)..................  .......  .......  .......  .......  .......     20.1     21.7     23.5     25.6       30.2      121.1
    Supplementary medical insurance (Part B).....  .......  .......  .......  .......  .......     14.5     15.6     16.3     17.6       20.9       84.9
    Prescription drug insurance (Part D).........  .......  .......  .......  .......  .......      5.3      5.5      6.0      6.8        8.4       32.0
    Exclusion of certain subsidies to employers        1.0      1.1      1.1      1.1      1.1  .......  .......  .......  .......  .........        5.3
     who maintain prescription drug plans for
     Medicare enrollees..........................
Income Security
  Exclusion of workers' compensation benefits      .......  .......  .......  .......  .......      2.6      2.7      2.7      2.7        3.0       13.7
   (disability and survivors payments)...........
  Exclusion of damages on account of personal      .......  .......  .......  .......  .......      1.5      1.5      1.5      1.5        1.6        7.5
   physical injuries or physical sickness........
  Exclusion of special benefits for disabled coal  .......  .......  .......  .......  .......      0.1    (\1\)    (\1\)    (\1\)      (\1\)        0.2
   miners........................................
  Exclusion of cash public assistance benefits...  .......  .......  .......  .......  .......      2.9      3.0      3.0      3.1        3.4       15.4
  Net exclusion of pension contributions and
   earnings:
    Employer plans...............................  .......  .......  .......  .......  .......    108.6    114.1    120.4    126.7      137.5      607.3
  Individual retirement plans....................  .......  .......  .......  .......  .......     15.5     17.0     18.5     20.0       23.2       94.1
  Plans covering partners and sole proprietors     .......  .......  .......  .......  .......      8.8      9.5     10.6     11.5       14.1       54.5
   (sometimes referred to as ``Keogh plans'')....

[[Page 35]]

 
  Tax credit for certain individuals for elective  .......  .......  .......  .......  .......      0.9      0.9      0.9      0.9        0.9        4.4
   deferrals and IRA contributions...............
  Exclusion of other employee benefits:
    Premiums on group term life insurance........  .......  .......  .......  .......  .......      2.6      2.6      2.7      2.7        2.7       13.3
    Premiums on accident and disability insurance  .......  .......  .......  .......  .......      2.8      2.9      3.0      3.1        3.4       15.3
  Additional standard deduction for the blind and  .......  .......  .......  .......  .......      1.7      1.6      1.7      1.8        2.2        8.9
   the elderly...................................
  Deduction for casualty and theft losses........  .......  .......  .......  .......  .......      0.8      0.3      0.3      0.3        0.3        2.0
  Earned income credit (EIC).....................  .......  .......  .......  .......  .......     44.7     46.5     47.9     48.9       46.9      234.9
  Exclusion of survivor annuities paid to            (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.1
   families of public safety officers killed in
   the line of duty..............................
  Exclusion of disaster mitigation payments......    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      (\1\)        0.2
Social Security and Railroad Retirement
  Exclusion of untaxed social security and         .......  .......  .......  .......  .......     22.4     23.1     24.0     25.0       30.6      125.1
   railroad retirement benefits..................
Veterans' Benefits and Services
  Exclusion of veterans' disability compensation.  .......  .......  .......  .......  .......      3.1      3.3      3.5      3.6        3.8       17.2
  Exclusion of veterans' pensions................  .......  .......  .......  .......  .......      0.1      0.1      0.1      0.1        0.1        0.5
  Exclusion of veterans' readjustment benefits...  .......  .......  .......  .......  .......      0.3      0.3      0.4      0.4        0.4        1.8
  Exclusion of interest on State and local           (\1\)    (\1\)    (\1\)    (\1\)    (\1\)      0.1      0.1      0.1      0.1        0.1        0.4
   government qualified private activity bonds
   for veterans' housing.........................
General Purpose Fiscal Assistance
  Exclusion of interest on public purpose State        7.8      8.4      8.8      9.2      9.6     20.0     21.5     22.5     23.6       24.7      156.0
   and local government bonds....................
  Deduction of nonbusiness State and local         .......  .......  .......  .......  .......     33.9     29.6     29.6     30.0       52.0      175.1
   government income taxes, sales taxes, and
   personal property taxes \10\..................
Interest
  Deferral of interest on savings bonds..........  .......  .......  .......  .......  .......      1.1      1.2      1.2      1.2        1.3        6.0
--------------------------------------------------------------------------------------------------------------------------------------------------------
\1\ Positive tax expenditure of less than $50 million.

[[Page 36]]

 
\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 $10.9 billion
  over the fiscal years 2007 through 2011.
\3\ In addition, the credit from excise tax for biodiesel fuels results in a reduction in excise tax receipts, net of income tax effect, of less than
  $50 million in each of the fiscal years 2007 through 2011.
\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: $58.1 billion in 2007,
  $59.6 billion in 2008, $61.0 billion in 2009, $62.0 billion in 2010, and $48.9 in 2011.
\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, 2007.
 
Note.--Details may not add to totals due to rounding.
 
Source: Joint Committee on Taxation.


[[Page 37]]


 Table 2.--Distribution by Income Class of All Returns, Taxable Returns, Itemized Returns, and Tax Liability at
                               2006 Rates and 2006 Law and 2006 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...............................           26,394              293              590          -$6,755
$10,000 to $20,000..........................           23,074            5,181            1,179          -15,354
$20,000 to $30,000..........................           15,893            7,349            2,015           -6,247
$30,000 to $40,000..........................           14,482            8,939            3,020            6,505
$40,000 to $50,000..........................           12,323            9,181            3,762           19,683
$50,000 to $75,000..........................           22,777           19,639            9,847           78,143
$75,000 to $100,000.........................           14,575           14,165            8,772           89,575
$100,000 to $200,000........................           18,520           18,430           15,101          249,920
$200,000 and over...........................            5,138            5,130            4,754          576,758
                                             -------------------------------------------------------------------
      Total.................................          153,177           88,306           49,038         $992,229
----------------------------------------------------------------------------------------------------------------
\1\ Tax law as in effect on December 31, 2006, is applied to the 2006 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.


[[Page 38]]


   Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items, at 2006 Rates and 2006
                                                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...............................                9            (\3\)              373                0
$10,000 to $20,000..........................              210              $38              797              $29
$20,000 to $30,000..........................              642              186            1,339              128
$30,000 to $40,000..........................            1,007              364            2,137              324
$40,000 to $50,000..........................            1,223              586            2,777              625
$50,000 to $75,000..........................            2,542            1,822            8,004            2,859
$75,000 to $100,000.........................            1,747            1,608            7,637            3,592
$100,000 to $200,000........................            1,434            2,595           13,858           11,529
$200,000 and over...........................              110              711            4,459            5,449
                                             -------------------------------------------------------------------
      Total.................................            8,924            7,911           41,381          $24,536
----------------------------------------------------------------------------------------------------------------
Footnotes appear at the end of table.


[[Page 39]]


   Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items, at 2006 Rates and 2006
                                          Income Levele \1\--Continued
                          [Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
                                                State and local income, sales       Charitable contributions
                                                  and personal property tax                 deduction
              Income Class \2\                            deduction            ---------------------------------
                                             ----------------------------------
                                                  Returns           Amount          Returns           Amount
----------------------------------------------------------------------------------------------------------------
Below $10,000...............................               18                0                2            (\3\)
$10,000 to $20,000..........................              394              $22              252              $23
$20,000 to $30,000..........................            1,284              114              938              141
$30,000 to $40,000..........................            2,415              300            1,871              371
$40,000 to $50,000..........................            3,448              642            2,711              664
$50,000 to $75,000..........................            9,707            3,163            8,122            2,956
$75,000 to $100,000.........................            9,054            4,022            7,837            3,676
$100,000 to $200,000........................           15,195           15,250           14,120           11,826
$200,000 over...............................            3,772           20,573            4,567           19,365
                                             -------------------------------------------------------------------
      Total.................................           45,286          $44,086           40,420         $39,022
----------------------------------------------------------------------------------------------------------------
Footnoes appear at the end of table.


[[Page 40]]


   Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items, at 2006 Rates and 2006
                                          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                0            5,747           $6,650
$10,000 to $20,000..........................              112              $26            6,407           16,349
$20,000 to $30,000..........................              455              228            4,808           11,353
$30,000 to $40,000..........................              553              302            4,067            6,446
$40,000 to $50,000..........................              603              370            1,815            1,987
$50,000 to $75,000..........................            1,193              636              534              475
$75,000 to $100,000.........................            1,011              534                9                5
$100,000 to $200,000........................            1,866              984                3                5
$200,000 over over..........................              362              188                0                0
----------------------------------------------------------------------------------------------------------------
      Total.................................            6,157            3,268           23,391           43,270
----------------------------------------------------------------------------------------------------------------
Footnotes appear at the end of table.


[[Page 41]]


   Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items, at 2006 Rates and 2006
                                          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...............................              151               $4              304             $421
$10,000 to $20,000..........................            8,295            2,939            3,018            1,669
$20,000 to $30,000..........................            2,698            2,555            4,148            4,925
$30,000 to $40,000..........................            2,263            2,774            4,225            6,274
$40,000 to $50,000..........................            2,255            2,919            3,298            5,403
$50,000 to $75,000..........................            5,392            6,554            6,066           10,237
$75,000 to $100,000.........................            3,356            2,652            4,541            7,713
$100,000 to $200,000........................            3,122              842            5,688            8,743
$200,000 and over...........................              948              348               15               10
                                             -------------------------------------------------------------------
      Total.................................           28,479          $21,587           31,302          $45,393
----------------------------------------------------------------------------------------------------------------
Footnotes appear at the end of table.


[[Page 42]]


   Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items, at 2006 Rates and 2006
                                          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...............................                2            (\3\)               35               $2
$10,000 to $20,000..........................              556             $119              259               16
$20,000 to $30,000..........................              941              404              464               37
$30,000 to $40,000..........................              967              531              707               69
$40,000 to $50,000..........................              932              531              767               95
$50,000 to $75,000..........................            1,492              972            1,602              191
$75,000 to $100,000.........................            1,343            1,002            1,036              120
$100,000 to $200,000........................              866              589            1,516              249
$200,000 and over...........................            (\5\)            (\3\)  ...............  ...............
----------------------------------------------------------------------------------------------------------------
      Total.................................            7,100           $4,148            6,387             $779
----------------------------------------------------------------------------------------------------------------
Footnotes appear at the end of table.


[[Page 43]]


   Table 3.--Distribution by Income Class of Selected Individual Tax Expenditure Items, at 2006 Rates and 2006
                                          Income levels \1\--Continued
                          [Money amounts in millions of dollars, returns in thousands]
----------------------------------------------------------------------------------------------------------------
                                                                                   Mortgage interest deduction
                               Income Class \2\                                ---------------------------------
                                                                                    Returns           Amount
----------------------------------------------------------------------------------------------------------------
Below $10,000.................................................................               12               $1
$10,000 to $20,000............................................................              237               65
$20,000 to $30,000............................................................              733              330
$30,000 to $40,000............................................................            1,515              814
$40,000 to $50,000............................................................            2,261            1,523
$50,000 to $75,000............................................................            6,929            6,827
$75,000 to $100,000...........................................................            6,957            8,360
$100,000 to $200,000..........................................................           12,888           27,936
$200,000 and over.............................................................            3,759           19,663
                                                                               ---------------------------------
      Total...................................................................           35,292          $65,518
----------------------------------------------------------------------------------------------------------------
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.

